Telecom Stocks Diverge Amidst Industry Shifts: Analyst Picks AT&T for Best Opportunity

BofA Securities analyst Michael J. Funk recommends a perceptive approach to telecom stocks, prioritizing multiple expansion opportunities, return on capital, and well-defined fiber or wireless convergence strategies. He notes that AT&T has the most flexibility to compete effectively and return capital, while T-Mobile's focus on net addition targets and premium valuation leaves less room for positive estimate revisions. Funk also notes that Verizon's proposed acquisition of Frontier Communications adds execution uncertainty.

BofA Securities analyst Michael J. Funk has reinstated coverage for telecom stocks, offering a perceptive approach that prioritizes multiple expansion opportunities, return on capital, and well-defined fiber or wireless convergence strategies. Funk notes that the industry is evolving and underappreciated, despite diverging strategies among the major players [3].

Funk highlights that AT&T Inc. (T) has the most flexibility to compete effectively and return capital, positioning it as the best opportunity for driving stock performance. AT&T's focus on fiber densification, facilitated by the One Big Beautiful Bill Act, is expected to boost economic development and enhance broadband connectivity, particularly in rural and suburban areas [1]. The company aims to invest more in next-generation networks and accelerate fiber deployment to an additional 1 million locations annually starting in 2026.

In contrast, T-Mobile US Inc. (TMUS) is focused on net addition targets and premium valuation, which leaves less room for positive estimate revisions. The company has launched Fiber Home Internet service plans with various enticing features, including Fiber 500, Fiber 1G, Fiber 2G, and Fiber Founders Club plans [1]. However, T-Mobile's strategy may not offer the same upside potential as AT&T.

Verizon Communications Inc. (VZ) is balancing responsible growth and protecting its premium subscriber base. The proposed acquisition of Frontier Communications introduces execution uncertainty and could initially pressure free cash flow. Verizon's strategy includes expanding its broadband footprint through fiber builds, M&A, joint ventures, and fixed wireless access (FWA) [2].

Funk notes that the telecom industry is no longer one-size-fits-all, with company-specific factors growing in importance as competition increases and strategies diverge. He emphasizes that handset subsidies and buyout offers may increase as carriers and cable companies seek to catalyze churn, grow subscribers, and lock in stickier converged customers [2].

BofA Securities expects AT&T to deliver the highest projected return of capital (dividends + buybacks) in 2026 at 7.2% of market cap, making it the most attractive opportunity among the major telecom players [3].

References:
[1] https://www.theglobeandmail.com/investing/markets/stocks/VZ/pressreleases/33249032/one-big-beautiful-bill-act-fuels-atts-fiber-densification/
[2] https://finance.yahoo.com/news/telecom-stocks-no-longer-one-180054429.html
[3] https://www.investing.com/news/stock-market-news/bofa-says-telecom-stocks-are-underowned-reinstates-att-at-buy-4124411