This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
You cannot pin all the credit on Apple (AAPL) for the surging stock prices this year for AT&T (T) and T-Mobile (TMUS).
I would actually argue Apple deserves none of the credit. Sorry, not sorry, Tim Cook!
Who deserves the credit? The top brass at each company that have been focused on running more beastly telecom operations. I am talking about a maniacal focus on profit margins, free cash flow generation, and expansion of potentially lucrative opportunities. And in turn, there has been zero focus on doing dumb things with shareholder money like expanding into the media business.
First up in this analytical drill-down is Dallas, Texas-based AT&T, led by company veteran John Stankey.
At an investor day this week, Stankey used his trademark deep voice (see video above) to outline more than $40 billion to be returned to shareholders over the next three years via stock buybacks and dividends. What really caught my attention was the guidance for double-digit percentage earnings growth in 2027.
AT&T and double-digit earnings growth normally aren’t heard in the same sentence.
Execs are betting that investments in 5G infrastructure and fiber will yield a quicker pace of sales and earnings growth than seen in 2024.
For Stankey, the year-end investor day capped his continued efforts to pivot back to simply being a telecom giant.
In April 2022, AT&T closed its deal to spin off its WarnerMedia division, which it had purchased for a colossal $85 billion just three years earlier. The move combined WarnerMedia’s HBO and CNN with Discovery’s HGTV, Animal Planet, Food Network, and TLC.
The deal has been a full-on disaster for CEO David Zaslav who leads the now Warner Bros. Discovery (WBD).
Since the spin-off, AT&T has zeroed in on reducing debt, partly from the WarnerMedia acquisition. In September, AT&T sold its majority stake in TV provider DirecTV to private equity firm TPG for $7.6 billion.
AT&T’s long-term debt now stands at $126 billion, down from more than $128 billion in 2022.
“I can say that we are back in growth mode,” Stankey told me on Yahoo Finance’s Market Domination. “I think we’re early innings in our success story, so I don’t think it’s mission accomplished.”
Stankey added he’s bullish on the Trump administration providing tailwinds to his business, especially if tax cuts are extended.
Shares are up 42% over the past year, according to Yahoo Finance data. The stock yields 4.6%, compared to the 10-year Treasury yield of 4.2%.
Interestingly, the stock only trades on a forward price-earnings ratio of 10.1 times, less than half the multiple afforded the S&P 500 (^GSPC).
“We expect shares to re-rate given the company’s unique growth algorithm and visibility to improving capital returns — which should get investors off the sidelines,” JPMorgan analyst Sebastiano Petti said this week.
Then there is Bellevue, Wash.-based T-Mobile, led by the high-energy, often smack-talking CEO Mike Sievert.
At its own investor day in September, the company said it’s targeting a compound annual services revenue growth rate (CAGR) of 5% through 2027, up from its current pace of about 4%.
T-Mobile is also aiming for $10 billion more in adjusted operating profits through 2027 compared to 2023, with a projected range of $38 billion to $39 billion.
The company promised $50 billion in dividends and stock buybacks through 2027.
“We said we would combine these two companies [Sprint and T-Mobile] and complete the most successful merger of scaled telecoms in the history of the industry, and we did that, and we unlocked the value in excess of what we promised. And now it’s time for the next chapter,” Sievert told Yahoo Finance.
Sievert added, “We wanted to unveil these plans because investors want to know, after that historically successful run of the last few years, what’s next.”
T-Mobile’s $1.35 billion Mint Mobile deal closed in May, giving the company access to more value-conscious shoppers.
The company is also looking to close on deals for fiber-optic plays Metronet ($4.9 billion), US Cellular ($4.4 billion), and Lumos ($950 million).
T-Mobile’s stock is up a cool 52% on the year. Its stock is valued more in line with its recent growth, with a P/E ratio of 22 times. But that’s not exactly screaming overvalued in the context of what T-Mobile has conveyed on its future growth.
“They [T-Mobile] are in a league of their own,” Evercore ISI analyst Kutgun Maral said.
For what it’s worth, Verizon’s (VZ) stock is up 13% this year. Honorable mention award.
Three times each week, I drive insight-filled conversations and chats with the biggest names in business and markets on Opening Bid. You can find more episodes on our video hub or watch on your preferred streaming service.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
