Telecom & Wireless

Expected Upside Gains for Leading Telecom Companies (T, VZ, S, FTR, CTL, LEAP, PCS)

Jon C. Ogg

Telecommunications providers are among the most visible companies in the US today, likely because essentially everyone has either a landline phone or a cell phone or, more usually, at least one of each. Today we take a look at the implied gains among seven telecoms companies based on current share price targets. The companies are AT&T (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Sprint Nextel Corp. (NYSE: S), Frontier Communications Corp. (NYSE: FTR), CenturyLink, Inc. (NYSE: CTL), Leap Wireless International Inc. (NASDAQ: LEAP), and MetroPCS Communications, Inc. (NYSE: PCS). All data from Yahoo! Finance.

AT&T (NYSE: T) has a mean price target of $32.33 from 24 brokers. In early afternoon trading today, shares are priced at $28.78, for an implied gain of $3.55, or 11%. AT&T’s forward P/E is 11.30 and the company’s dividend yield is 6%. The stock’s 52-week trading range is $27.20-$31.94, and it’s trading today about 6% above its low and about 10% below its 52-week high. The company’s $39 billion offer for T-Mobile USA would make it the largest US mobile carrier, but a US Justice Department lawsuit could kill or at least slow down the conclusion of that deal.

Verizon Communications Inc. (NYSE: VZ) has a mean price target of $38.61 from 27 brokers. Shares are now trading at $36.61, for an implied gain of $2.00, or 5.2%. Verizon’s forward P/E is 14.13 and the company’s dividend yield is 5.5%. The stock’s 52-week trading range is $31.60-$38.95, and it’s trading today about 15% above its annual low and about 6% below its 52-week high. Verizon has the lowest implied gain of all the stocks in this list, which could be a result of investors’ reaction to the AT&T/T-Mobile deal that would put Verizon substantially behind AT&T in number of subscribers.

Sprint Nextel Corp. (NYSE: S) has a mean price target of $5.28 from 28 brokers. Shares are trading at $2.34 today, for an implied gain of $2.94, or 55.7%. Sprint’s forward P/E is negative and the stock does not pay a dividend. The stock’s 52-week trading range is $2.10-$6.45, and it’s trading today about 11% above its 52-week low and 64% below its 52-week high. The numbers on Sprint don’t tell the full story, though, as analyst downgrades have hit the stock hard recently and most of the new price targets are in the $3/share range. The company’s decision to bet the farm on Apple’s iPhone has sent investors fleeing.

Frontier Communications Corp. (NYSE: FTR) has a mean price target of $7.84 from 14 brokers. The stock is trading around $5.92 today, for an implied gain of $1.92, or 24.5%. Frontier’s forward P/E is 14, and the company’s dividend yield is 12.80%. The stock’s 52-week trading range is $5.33-$9.84, and it’s trading today about 11% above its low and almost 40% below its 52-week high. Frontier’s attraction to shareholders is its high dividend yield, which the company’s board recently affirmed its intention to continue paying the $0.75 annual dividend.

CenturyLink, Inc. (NYSE: CTL) has a mean price target of $44.12 from 17 brokers. Shares are trading today at $33.56, for an implied gain of $10.56, or 23.9%. CenturyLink’s forward P/E is 18.95 and the company’s dividend yield is 8.8%. The stock’s 52-week trading range is $31.16-$46.87, and it’s trading about 8% above its low and 28% below its 52-week high. CenturyLink just completed its $24 billion acquisition of Qwest, which gives the combined company a large base of landline subscribers who are not sticking around. The company needs to improve its mobile subscriber numbers and to juice up its broadband base, but that dividend is mighty tempting these days.

Leap Wireless International Inc. (NASDAQ: LEAP) has a mean target price of $10.95 from 20 brokers. Shares are trading at $6.00 today, for an implied gain of $4.95, or 45.2%. Leap’s forward P/E is 20 and the company does not pay a dividend. The stock’s 52-week trading range is $5.50-$17.66, and it’s now trading about 9% above its annual low and about 66% below its 52-week high. Leap, along with MetroPCS, are among the low-cost providers of wireless service and both companies focus on pre-paid subscribers who buy minutes as needed, unlike the contract (post-paid) subscribers at AT&T or Verizon. The two companies talked merger last year, but were unable to reach a deal.

MetroPCS Communications, Inc. (NYSE: PCS) has a mean price target of $15.12 from 23 brokers. Shares traded today at $8.33, for an implied gain of $6.79, or 44.9%. MetroPCS’s forward P/E is 8.13 and the company does not pay a dividend. The stock’s 52-week range is $7.75-$18.79, and it’s now trading about 10% above the annual low and about 56% below its 52-week high. MetroPCS, and Leap, both address the only part of the mobile market that is still showing significant growth — the low-end customer unable or unwilling to pay north of $100 for a smartphone. T-Mobile, which also competes at this end of the market, is stymied by the takeover offer from AT&T. Both Leap and MetroPCS also need some help from falling handset prices. More merger talks could be on the horizon as well. MetroPCS’s market cap of just around $3 billion is 6 times Leap’s of around $500 million. Not a lot of extra clout and probably not a lot of cost-cutting synergies either.

Paul Ausick