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Another solid quarter is expected from the telecom sector, Morgan Stanley analyst Simon Flannery said in a note Friday.
Focusing on “the big 3” AT&T (NYSE:T), Verizon (NYSE:VZ), and T-Mobile (NASDAQ:TMUS), Flannery stated they will be paying close attention to the broader earnings outlook for the market.
“Disappointing overall corporate earnings growth and rising recession fears could help support a continued rotation into the Telco sector as something of a safe haven,” said Flannery. “So far this year the Big 3 Telcos are up +8.9% on average, dramatically outperforming the S&P 500 (down >20%). Despite this both AT&T and Verizon still trade at single digit P/E ratios (compared with the S&P 500’s 16.5x, a 46.8% discount) with 5%+ dividend yields. T-Mobile, our Top Pick within Telecom Services, should announce the start of their buyback program in coming months.”
Flannery believes wireless adds should remain healthy, and they expect “Big 3 + Cable to add c. 1.8M postpaid phone subscribers this quarter, versus 2.2M a year ago.”
“Wireless pricing moves and churn/switching behavior will be important. These will be a focus this quarter, although the bulk of the impacts will be felt in 3Q22 and beyond,” added the analyst.
Byrd also said they will be watching macro pressures with the firm’s recent CIO survey suggesting a modest tick down in IT spending expectations this year, but its “Macro team has been cutting GDP estimates and sees rising recession risks.”
