Key Points
- Bank of America has rated AT&T a “Buy,” making it the firm’s top pick in the telecom sector. Verizon and T-Mobile both received “Neutral” ratings.
- BofA favors AT&T because it has the most flexibility to compete and return cash to shareholders.
- The firm is cautious on Verizon due to its Frontier acquisition and on T-Mobile due to its high valuation.
- Increased competition from cable companies is expected to limit future price hikes across the industry.
Bank of America has reinstated its coverage of the U.S. telecom sector, with a clear favorite: AT&T, rated a “Buy,” while its main rivals, T-Mobile and Verizon, receive “Neutral” ratings. The bank argues that the industry is more dynamic than investors realize, and that AT&T is well-positioned to succeed.
In a note to clients, BofA analysts said the telecom industry is often “overlooked as being in a sleepy, mature industry.” However, they pointed out that since 2023, AT&T’s stock has delivered a total return of 84%, outperforming both T-Mobile and Verizon.
The firm’s top pick comes down to flexibility. BofA believes AT&T has the “greatest flexibility to both compete effectively and return capital” to its shareholders through dividends and stock buybacks. They project AT&T will return 7.2% of its market value to investors in 2026, the highest in the sector.
The bank is more cautious about the competition. For Verizon, the recent acquisition of Frontier creates “execution uncertainty” and could hurt its cash flow. As for T-Mobile, BofA sees limited upside, stating that its premium valuation and focus on just adding new customers leaves “less room for positive estimate revisions.”
BofA also warned that the entire sector faces growing competition as broadband and cable companies continue to push into the wireless market. This intense competition will make it much harder for telecom companies to rely on price increases to drive growth. This strategy has worked well in the past.
