Better Buy: AT&T vs. Comcast


AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) are two of America’s largest telecom and media conglomerates. Both companies provide broadband internet, pay TV, landline, and wireless services in the U.S.

Both companies are also media juggernauts. AT&T’s WarnerMedia division owns Warner Bros., HBO, and the Turner Cable Networks. Comcast’s NBCUniversal owns NBC, Universal Studios, its eponymous theme parks, and a broad portfolio of cable networks.

A man looks at a tablet filled with videos split into separate screens.

Image source: Getty Images.

Over the past five years, AT&T’s stock has declined more than 20% as it’s struggled with unwieldy acquisitions, rising debt, competition in the wireless market, and the slow death of its pay TV business.

During the same period, Comcast’s stock has rallied nearly 90% as the strength of its internet, media, and theme park businesses offset some of its other weaknesses. Will Comcast continue to outperform AT&T over the next few years? Let’s take a fresh look at both companies to find out.

AT&T is spinning too many plates

AT&T’s recent problems started in 2015, when it bought DirecTV for $66 billion to expand its pay TV business. However, the platform has continuously lost subscribers to streaming services like Netflix.

To counter that secular decline, AT&T bought Time Warner for $85 billion in 2018 to build its own streaming services. Those big acquisitions, along with its purchases of some spectrum licenses, caused its total debt to soar from $82.1 billion at the end of 2014 to $147.5 billion at the end of 2020.

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AT&T launched several streaming services last year, but the pandemic severely disrupted WarnerMedia’s TV and movie businesses. Meanwhile, its pay TV business continued to bleed subscribers, culminating in its decision to spin off a stake in DirecTV in a joint venture in February.

As AT&T tried to offset the decline of its pay TV business by expanding its streaming services, T-Mobile merged with Sprint and replaced it as the second-largest wireless carrier in the U.S. after Verizon. Through the use of longer-range 5G networks, T-Mobile also surpassed both AT&T and Verizon in terms of total network coverage.

AT&T’s latest earnings reports revealed a few green shoots, including the growth of HBO Max and the stabilization of the company’s wireless business, but its weaknesses still offset most of its strengths — which caused its revenue and adjusted earnings to decline 5% and 11%, respectively, in fiscal 2020.

Wall Street expects AT&T’s revenue to rise less than 1% this year and for its earnings to dip 1% as it continues its painful turnaround. That’s why its stock still doesn’t seem cheap at nine times forward earnings.

Comcast’s moves make a lot more sense

Comcast also made several acquisitions over the past five years, including Dreamworks Animation in 2016, Sky in 2018, and the free streaming media platform Xumo last year. It also partnered with Verizon to launch a wireless service called Xfinity Mobile.

However, Comcast spent significantly less money on those deals than AT&T, and they each fit neatly into its media business. Dreamworks added more animated movies to its theatrical slate while giving its theme parks more properties to work with, Sky expanded its portfolio of cable networks and its reach in the U.K. market, Xumo supported the launch of Comcast’s free Peacock streaming service, and Xfinity Mobile enhanced its telco bundles.

Comcast’s long-term debt also rose significantly, from $48.2 billion in fiscal 2014 to $103.8 billion in 2020, but its core business remains more stable than AT&T’s.

Last year, steep revenue declines at NBCUniversal — which struggled with lower ad revenue, postponed movies, and closures at its theme parks throughout the pandemic — offset the stronger growth of the cable communications segment’s internet and wireless businesses. That’s why Comcast’s revenue and adjusted earnings declined 5% and 17%, respectively, in fiscal 2020.

However, analysts expect Comcast’s revenue and earnings to rise 8% and 9%, respectively, this year as its media business recovers and its theme parks reopen. The Olympic Games in Japan should also bring more viewers to NBC this year, as they did in previous years, and possibly bring more streaming viewers to Peacock.

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Comcast might initially seem pricier than AT&T at 16 times forward earnings, but it’s actually much cheaper relative to its growth.

But what about the dividends?

AT&T’s forward dividend yield of 6.9% is significantly higher than Comcast’s 1.8% yield. However, AT&T also consistently wiped out most of its dividend gains with its declining stock price. Over the past five years, AT&T generated a total return of 3% after factoring in reinvested dividends. Comcast generated a total return of 107% during the same period.

Past performance never guarantees future gains, but AT&T’s ongoing challenges suggest it will continue to underperform Comcast, which should easily regain its footing after the pandemic passes. 

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.




View more information: https://www.fool.com/investing/2021/03/29/better-buy-att-vs-comcast/

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