Goldman Sachs analyst James Schneider, Ph. D., initiated coverage on the U.S. Telecom Services and infrastructure sector (14 companies) and is most constructive on wireless carriers and data centers.
Schneider noted that the U.S. telecom industry is in a state of transformation. The U.S. telecom operators have refocused on their core business after emerging from a period as conglomerates marked by shareholder capital destruction.
For the first time in a decade, the U.S. wireless operators are entering a period where both competitive and capital intensity are moderating simultaneously.
He said this backdrop drove healthier growth and margin dynamics, with the potential for significant capital returns and stock re-rating.
U.S. towers are unlikely to enjoy the same structural tailwinds they have over the past decade, but “self-help” actions could unlock shareholder value, as per Schneider.
The era of 5G failed to deliver any revolutionary “killer app” but the technology has enabled telecom to compete for broadband customers outside traditional footprints with Fixed Wireless Access.
The analyst noted that traditional broadband companies (including cable operators) face heightened competition and will have difficulty gaining subscribers while accelerating network upgrades to compete.
He said AI represents a significant opportunity for the sector.
As per Schneider, data center operators should continue to enjoy cyclical benefits (over the next 12 months) from demand created by Generative AI and supply constraints due to power limitations.
The analyst also noted AI as a driver of efficiency gains, allowing for margin expansion.
Schneider’s Buy ratings reflect stocks, where he noted the market needs to fully appreciate the sustainability of growth the company can deliver across the cycle or where the pace of potential cyclical recovery in fundamentals is underpriced.
Verizon Communications Inc (NYSE:VZ), with a $50 price target, is beginning to regain momentum in its core wireless franchise and will significantly benefit from fixed wireless in both its consumer and business franchises, according to the analyst.
AT&T Inc (NYSE:T), with a $22 price target, is positioned to continue its transformation as it refocuses on its core business, extends its fiber broadband leadership, and maintains growth in its wireless franchise, as per Schneider.
T-Mobile US, Inc (NASDAQ:TMUS), with a $200 price target, is poised to continue its core wireless growth algorithm (albeit at a moderating rate), with broadband driving the next chapter of growth, as per the analyst.
Frontier Communications Parent, Inc (NASDAQ:FYBR), with a $29 price target, is the analyst’s top relative pick among wireline peers. He noted the company is positioned to successfully execute its pivot to being a fiber broadband provider from its legacy heritage.
Schneider’s Sell ratings are Charter Communications Inc (NASDAQ:CHTR) with a $250 price target, Altice USA, Inc (NYSE:ATUS) with a $2 price target, and Lumen Technologies Inc (NYSE:LUMN) with a $1 price target.
Price Action: VZ stock is up 0.91% at $41.62 at the last check on Monday.
Photo by JeepersMedia on Flickr
