Wireless industry insiders in the U.S. love to argue about carrier factors such as promotional campaigns, ARPU and price per gigabyte (as evidenced by the recent dust-up regarding Verizon's recent price hikes). But a new research note from MoffettNathanson argues investors shouldn't pay too much attention to those variables when it comes to picking carrier stocks.
In a research note titled "Will Q2 Earnings Even Matter?", MoffettNathanson noted some seemingly important developments in wireless over the last several months: aggressive buy-one, get-one-free offers for high-end smartphones; T-Mobile's disruptive uncarrier campaign; zero-rated data offerings and, yes, Verizon's overhauled pricing plans.
Meanwhile, the health of carriers' balance sheets has increasingly come into question due in part to complex financial mechanisms designed to address the rising uptake of equipment installment plans (EIPs). And of course industry analysts continue to pay very close attention to market share, tracking net subscriber additions and losses at every possible turn.
Those factors may not be as important as they seem, however.
"In most industries, all these stories would have been solid fodder for debate about intrinsic value, growth trajectories, and ultimately, valuations," Craig Moffett wrote. "But telecom isn't most industries. It has now been a full decade since fundamentals were last a major part of the telco equity performance story (good or bad)."
The importance of those fundamentals may increase again soon, though, Moffett predicted. AT&T, for instance, is likely to provide more clarity to its economic stability when it fully folds DirecTV's finances into its own, a move that may enable investors "to see how weak underlying growth metrics really are."
Verizon, meanwhile, "remains stuck in a cycle of small but persistent negative revisions that, were if not for the favorable macro backdrop, would have punished stocks in other sectors." And Verizon has indicated that its long-term growth will approximate GDP, which essentially means growth is likely to "equal GDP-less inflation."
The second half of 2016 will see the release of the next iPhone, of course, which should spur heavy promotional activity that could boost churn. And that may benefit T-Mobile and Sprint, which don't have as many iPhones on their networks, at the expense of Verizon and AT&T. But it's still not clear all that will have much of an impact.
"When interest rates are falling and the dollar is rising, the story appears to have been pretty straightforward, after all: Buy telecom," Moffett wrote.
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