AT&T Vs. Verizon, Which Is The Better Value?

| About: AT&T Inc. (T)
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As more and more consumers cut their land lines and replace them with their mobile devices, a choice for every mobile consumer comes to pass. Which wireless network provider will I pick? In the U.S. there are four main choices, AT&T (NYSE:T), Verizon (NYSE:VZ), Sprint (NYSE:S), or T-Mobile. For the majority of consumers that list is even smaller and comes down to two choices, AT&T or Verizon. Just as consumers choose which carrier to use, investors also need to choose who will ultimately come out on top of this ongoing wireless battle.

I have been a long time follower of both AT&T and Verizon on my daily stock watch list. Recently I have been giving some serious thought into buying one of these companies and begin building a position within my portfolio. There are obvious differences in these two companies, but there are also a lot of similarities. When it comes to putting up my own capital to acquire one of these stocks I (like most) would like to buy the stock that presents the better value and ultimate deal. In trying to determine the better stock I want to take a deep dive into both firms' fundamentals and overall performance in hopes of seeing a clear winner.

AT&T is a massive company that provides telecommunications services to consumers, businesses, and other providers worldwide. The company has been around for years and is one of this country's largest wireless providers with roughly 100 million wireless subscribers. AT&T has a market capitalization of $199.35 Billion and a P/E of 29.43. The stock currently trades for around $35.50 per share. AT&T in 2012 generated $127.43 Billion in revenue which translated to $7.62 Billion in net income. AT&T also has $9.45 Billion in cash and long term investments and has a book value of $16.54 per share. One of the most attractive aspects of owning AT&T is its dividend yield, currently at $1.80 per share or 5.07%. AT&T has also had a long history of continually increasing its dividend each year, which makes this company very attractive for longer term investors.

From a wireless side AT&T claims to have the largest 4G LTE (4th Generation) coverage in the U.S., but its coverage is more isolated in larger metropolitan areas. AT&T has been actively involved in trying to expand its network, which it has done through numerous acquisitions and improvements in its current network over the past several years. More recently AT&T received FCC approval to acquire NextWave Wireless and Atlantic Tele-Network. The firm intends to use these acquisitions to further expand upon its 4G LTE capacity, currently in 135 cities. Due to AT&T's size it is hard for the company to easily grow organically, which forces the firm to divert its efforts on acquisition of smaller firms. As time goes on this continued growth through acquisition could face obstacles with the FCC. It wasn't that long ago when AT&T tried to acquire T-Mobile for $39 billion and 33.7 million subscribers which would have made AT&T the country's largest wireless provider. Ultimately the FCC blocked the transaction for fear that AT&T would control roughly 43% of the mobile phone market.

From an operations standpoint AT&T also faces some ongoing pressures to its financials. The two main impacts are from pension obligations and high phone costs. In the most recent Q4 release the company took a charge of $10 Billion or $1.79 per share due to higher than expected pension obligations. AT&T continues to subsidize smart phones for its consumers who sign up for 2+ year contracts. In an age where smart phones like Apple's (NASDAQ:AAPL) iPhone and Google's (NASDAQ:GOOG) Android phones can retail for as much as $700, the overall hit that AT&T continues to take by doing this is starting to add up.

Even though AT&T may have its fair share of operational problems the company still treats its shareholders extremely well. In addition to the hefty 5% yield the stock currently has, the company is also very good about buying back shares of the company on a regular basis. Just this past August 2012 the company announced that it planned to buy back 300 million shares, which represents almost 5% of the total AT&T shares outstanding. This new buy back is in addition to the 300 million share buyback that was announced back in December of 2010.

Verizon is the other massive telecommunications company in the U.S. Verizon originally was Bell Atlantic Corporation until the firm changed its name back in 2000. Verizon serves roughly 94.2 million retail customers. The company has a market capitalization of $130.91 Billion and a P/E of 148.40. The stock currently trades for around $45.85 per share. Verizon in 2012 generated $115.85 Billion in revenue which translated to $875 Million in net income. Verizon currently has $6.96 Billion in cash and long term investments and a book value of $11.60 per share. Similar to AT&T, Verizon also has a large dividend of $2.06 per share or 4.50%.

Verizon in its infancy decided that it would focus on growing and expanding its wireless business. That strategy has continued to pay off. Verizon unlike AT&T has the ability to service not only customers in larger metropolitan areas, but also customers in the more rural and remote areas of the country. Verizon's fourth generation network, 4G LTE is currently deployed in 476 cities. In the Q4 earnings announcement the company mentioned that it had grown service revenues by almost 8.5% and 2.1 million in retail postpaid connections.

Even with a strong wireless network Verizon too continues to further expand its balance sheet through acquisition. Its most recent acquisition was HUGHES Telematics. Verizon is hopeful that it can use this acquisition to further expand upon its involvement in the delivery of advanced automotive and fleet telematics and machine-to-machine services.

Verizon Wireless, similar to AT&T, also has some operational problems that plague it, mainly from high pension costs and the fact that UK based Vodaphone (NASDAQ:VOD) owns 45% of the company, while Verizon owns the remaining 55%. Pension obligations cost Verizon this past quarter $4.43 Billion or $1.55 per share. Even amongst these headwinds Verizon continues to offer a very nice dividend yield and the company plans to continue its share buyback program by buying back 100 million shares or 3.6% of the total float amount.

The below chart highlights some of the key metrics from each company and compares them to each other.



2012 Net Income

$875 M

$7.26 B

Market Capitalization

$131 B

$198 B







Current EPS



Dividend Yield



Share Buy-Back Amount

100 M

600 M

Cities with 4G LTE






Profit Margin



Return on Equity



Looking at the above chart AT&T is the clear winner. AT&T has a stronger cash position, P/E, EPS, dividend, and buyback program. I will agree that Verizon has a more diverse network in more cities of all sizes, but AT&T has a stronger network. Additionally, as a shareholder of AT&T you are buying 100% of AT&T stock. On the converse with Verizon, you are only buying 55% of Verizon since Vodaphone still owns 45% of the company. Additionally, from a fundamental standpoint AT&T presents a better price to book value and has higher profit margins. 4G LTE coverage and return on equity these are the only two areas where Verizon outpaces AT&T.

In either event both AT&T and Verizon will eventually be the main mobile carriers for all consumers and the age of landlines is slowly but surely ending. For shareholders of Frontier Communications (NYSE:FTR), Windstream Corporation (NASDAQ:WIN), or CenturyLink (NYSE:CTL) these stocks have continued to sell off and are now presenting true value traps. Regardless of which mobile carrier's stock looks more attractive in the chart above I would strongly suggest selling those old land line stocks and upgrading to a mobile play, preferably AT&T.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.