Amid ongoing macroeconomic uncertainties, U.S. telecom stocks emerge as a rare safe haven. Analysts from Bernstein report that companies like AT&T (NYSE:T), Verizon (NYSE:VZ), and T-Mobile (NASDAQ:TMUS) have delivered strong performance, surpassing the S&P 500 during the year, with T-Mobile hitting an all-time high.

Telcos Defy Market Stresses

Bernstein attributes this success to a shift towards defensive sectors. In shaky markets, investors prefer companies with stable cash flows, low beta, and resilient earnings like telecom operators.

Their research indicates a remarkable 80% inverse correlation between daily moves in telecom stocks and the S&P 500 during the last 40 trading sessions since February.

“Telecoms act as hedges against volatility, though not all firms are equally positioned,” the analysts remarked.

Performance Differences Within Telecom

Despite the sector’s overall health, specific stock fundamentals matter greatly. During the 2022 Fed tightening cycle, the S&P 500 saw a drop of nearly 25%. However:

• Verizon fell over 30%, reflecting weak forward guidance and subscriber losses.

• T-Mobile appreciated by about 15%, supported by strong subscriber acquisition and robust 5G deployment.

This highlights Bernstein’s view that making the right stock selections is crucial.

Defensive, Yet Not Without Challenges

Telecom earnings have historically proven more stable during downturns, enhancing the sector’s reputation as a defensive choice. Valuation multiples for telecoms also tend to contract less or even expand during turbulent markets.

However, Bernstein cautions of sector-specific challenges heading into 2024, such as:

• Slowing subscriber growth in wireless and broadband segments.

• Intensifying competitive pressures due to limited net additions.

• Increased capital expenditures required for network upgrades.

These factors could compress margins and hinder growth during economic recovery periods.

Bernstein’s Outlook on Major Telecom Stocks

Current market outlook from Bernstein on key U.S. telecom stocks includes:

• AT&T: Outperform with a price target of $29

• T-Mobile: Market Perform, target $265

• Verizon: Market Perform, target $46

While the sector holds potential as a defensive allocation, the emphasis remains on selecting stocks based on fundamentals and competitive positioning going forward.

Relevant Market Intelligence

• Company Rating – Analyze institutional ratings and scoring models for telecom stocks based on valuation, growth, and profitability.

• Earnings Historical Analysis – Explore trends in quarterly and annual EPS to assess telecom performance during various market cycles.