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Goldman Sachs on Monday started coverage of AT&T (NYSE:T), Verizon (NYSE:VZ), and T-Mobile (NASDAQ:TMUS) with an investment rating of “Buy” as part of a wider coverage initiation on the U.S. Telecom Services & Infrastructure sector.
“We believe the U.S. telecom industry is in a state of transformation. U.S. telecom operators have refocused on their core business after having emerged from a period as conglomerates marked by shareholder capital destruction. For the first time in a decade, we see the U.S. wireless operators entering a period where both competitive intensity and capital intensity are moderating simultaneously,” Goldman analysts wrote in their July 1 research report.
“We see this backdrop driving healthier growth and margin dynamics, with potential for significant capital returns and stock re-rating,” they added.
On AT&T, Goldman believes the company’s fiber initiative can reverse the declines in its broadband business, and steady wireless growth should help drive solid revenue and EBITDA growth through 2026. AT&T’s differentiated strategy of maximizing customer value by providing incentives to minimize churn has resulted in the industry’s “lowest postpaid phone churn rate for the past nine months,” they said.
The bank highlighted that AT&T (T) is focused on executing its core communications franchise after a long period of deleverage following a wind-down of media acquisitions, and now expects higher capital returns by mid-2025. The bank set a price target of $22 for the Dallas-based telecom giant, implying 17% upside.
Over to T-Mobile (TMUS), the wireless carrier is expected to benefit from the favorable landscape for the wireless industry in the medium term, and its momentum in the core wireless franchise is likely to sustain itself, but at a “moderating rate,” Goldman said.
“We see T-Mobile’s (TMUS) value-based pricing plans as being among the most compelling in the industry and think the company is likely to continue to gain market share as a result. However, we see the pace of share gains moderating in the market as the rate of postpaid net phone adds moderates in 2024 and 2025,” they said. The bank set a price target of $200, implying 13% upside.
For Verizon (VZ), the bank expects that the largest U.S. mobile network operator can deliver a sustained return to revenue, EBITDA, and free cash flow growth over the coming 18 months, with potential for a buyback in 2025, as a result of the favorable backdrop.
Goldman also noted that Verizon’s (VZ) execution in the core wireless business is starting to improve and it expects the company to deliver net positive phone subscribers over the next two years. The bank has set a price target of $50, or 20% upside.
