MW AT&T's stock is on a historic tear. Here's why wireless names are hot this year.

By Emily Bary

Investors like the pricing power of wireless carriers - and the potential for AT&T share buybacks later this year

Despite some stumbles earlier this week, AT&T Inc.'s stock is having a historic start to the year, demonstrating how wireless stocks have become a haven for investors.

The reason goes beyond interest rates. Yes, with the 10-year Treasury BX:TMUBMUSD10Y now yielding 4.29%, the dividend yields from AT&T $(T)$ (4.18%) and Verizon Communications Inc. $(VZ)$ (6.16%) now look more appealing. But there are also some business developments in the wireless sector that seem to be resonating.

For instance, prior to 2022, "it had been years since mobile prices had done anything other but go down," Wolfe Research analyst Peter Supino told MarketWatch earlier this week. But the companies moved to increase prices a few years back and now view hikes as a regular part of business going forward.

"Because the telecom industry had not had pricing power prior to, let's say, two years ago, the stocks traded as if the dividends that the telcos have always paid might not be sustainable," Supino explained.

Lately, though, wireless stocks have been showing momentum. AT&T shares are up 16.3% so far this year. Looking historically at all year-to-date performances through March 6, this would be AT&T's best such start, according to Dow Jones Market Data. T-Mobile US Inc. shares $(TMUS)$ are up 18.4% on the year and Verizon shares are ahead 9.6%. All three are beating the S&P 500 SPX, which is down 2.8% over the same span.

While Verizon's 12-month gain is roughly the same as its year-to-date gain, T-Mobile and AT&T shares are both up more than 50% over the past year. AT&T's stock closed at a five-year high earlier this week.

Don't miss: Lumen's stock got little love from Wall Street analysts. That's now changing.

"The starting condition for this outperformance in telecom stocks was extremely low valuation that implied investor skepticism about the sustainability of profits and therefore dividend yields," Supino said. He noted that a year ago, AT&T's stock was trading at 5.8 times enterprise value to earnings before interest, taxes, depreciation and amortization, with one of the highest yields in the S&P 500.

The new-look wireless stocks now have broader appeal, according to Supino. Previously, the people who wanted to talk with him about telecom stocks either specialized in the sector at hedge funds, or they ran dividend funds and were looking to balance out low-yielding plays like Microsoft Corp. $(MSFT)$ with the higher yields of AT&T and the like. Now he's hearing more generally from portfolio managers who have medium-term orientations.

On AT&T specifically, he said that investors like how the company is reinvesting the cash flow from its mobile business into growing its fiber footprint. What's more, the company is nearing a lower leverage ratio that should enable it to begin stock buybacks later this year.

"Investors believe that fiber expansion is a good strategic use of capital that will reinforce AT&T's long-term growth, and that share buybacks will contribute to their stock-price returns," Supino said.

See more: AT&T plans to plow $20 billion into buybacks in signal of business turnaround

Admittedly, there was a hiccup earlier this week when AT&T said at a Morgan Stanley investor conference that January was "a little bit rocky" in terms of churn, which measures the ability to retain customers. Though management signaled better trends in February and March, AT&T shares fell 5.4% on Tuesday to log their worst one-day percentage decline since July 17, 2023.

Citi Research analyst Michael Rollins called the January performance a "speed bump," saying in a report that he and his team "do not believe this was a larger churn or gross-add issue for AT&T."

The other wireless companies took to the Morgan Stanley conference as well, with T-Mobile Chief Financial Officer Peter Osvaldik calling out the "all-important postpaid service revenue metric that continues to be a really strong growth driver for us."

Tony Skiadas, the CFO at Verizon, said that "the wireless business is both robust and resilient, and we see that once again" in 2025.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 06, 2025 15:48 ET (20:48 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.