Industry Overview - The telecom sector has shown strong performance, with the S&P Telecom Select Industry Index increasing by 50.85% over the past year, significantly outperforming the S&P 500's 17.35% gain [1] - The index has also outperformed the broad market index month to date, rising by 9.52% compared to the S&P 500's 2% gain [1] - The sector's positive outlook is bolstered by optimistic AI growth forecasts and anticipated Federal Reserve rate cuts in 2025 [2] Verizon Communications - Verizon reported third-quarter 2025 results with wireless service revenues of $21 billion, reflecting a year-over-year increase of 2.1% [3] - On a GAAP basis, net income was $5.06 billion or $1.17 per share, up from $3.41 billion or 78 cents per share in the prior-year quarter, driven by top-line growth and lower operating expenses [4] - Total operating revenues increased by 1.5% to $33.82 billion, although it missed the consensus estimate of $34.18 billion [5] - Verizon achieved 261,000 net additions in fixed wireless access, growing its subscriber base to nearly 5.4 million, with a target of 8 to 9 million subscribers by 2028 [5] - The company expects wireless service revenues to grow by 2%-2.8% in 2025 [6] AT&T - AT&T reported third-quarter 2025 results with strong mobility and broadband demand trends, but both adjusted earnings and revenues fell short of the Zacks Consensus Estimate [7] - On a GAAP basis, net income was $9.28 billion or $1.29 per share, a significant improvement from a net loss of $0.23 billion or a loss of 3 cents per share in the prior-year quarter, largely due to a $5.5 billion gain from the sale of DIRECTV investments [8] - Adjusted earnings remained flat at 54 cents per share, missing the consensus estimate by a penny [9] - Quarterly GAAP operating revenues increased by 1.6% year over year to $30.71 billion, but also missed the consensus mark of $30.96 billion [9] - AT&T recorded 328,000 post-paid net additions, including 405,000 postpaid wireless phone additions [9] - The company aims to enhance operational efficiencies while focusing on 5G and fiber-based connectivity, along with expanding software-based entertainment platforms [10] - For 2025, AT&T expects wireless service revenues to improve by 3% or more, with broadband revenues anticipated to grow in the mid to high-teens [11] ETFs in Focus - Several exchange-traded funds (ETFs) provide exposure to the U.S. telecom industry, including: - Communication Services Select Sector SPDR Fund with 4.13% exposure to AT&T and 4.2% to Verizon [13] - Vanguard Communication Services ETF with 4.12% exposure to AT&T and 3.85% to Verizon [14] - Fidelity MSCI Communication Services Index ETF with 4.13% exposure to AT&T and 3.82% to Verizon [15] - iShares Global Comm Services ETF with 3.62% exposure to AT&T and 3.37% to Verizon [16] - iShares U.S. Telecommunications ETF with approximately 11.59% exposure to AT&T and 11.11% to Verizon [17]

Core Viewpoint - Verizon Communications has shown strong performance in its recent earnings report, surpassing estimates in both adjusted earnings and revenues, indicating solid growth in its wireless and broadband segments [2][4][5]. Financial Performance - Verizon reported Q2 2025 net income of $5.12 billion, or $1.18 per share, compared to $4.7 billion, or $1.09 per share, in the prior year, reflecting a positive trend in top-line growth [4]. - Total operating revenues increased by 5.2% to $34.5 billion, driven by service revenue growth and higher wireless equipment revenues, exceeding the consensus estimate of $33.58 billion [5]. - Adjusted earnings for the quarter were $1.22 per share, beating the Zacks Consensus Estimate by 4 cents [4]. Segment Performance - The Consumer segment saw revenues rise by 6.9% year over year to $26.65 billion, with service revenues up 2.1% to $20.26 billion and wireless equipment revenues increasing by 29.6% to $5.37 billion [6]. - The Business segment experienced a slight decline in revenues, down 0.3% to $7.27 billion, attributed to lower wholesale and enterprise revenues, which was below estimates [9]. Subscriber Growth - Verizon achieved industry-leading wireless service revenues of $20.9 billion, up 2.2% year over year, and added 278,000 fixed wireless access subscribers, bringing the total to over 5.1 million [3]. - The company recorded 65,000 wireless retail postpaid net additions in the quarter, with a churn rate of 1.61% [10]. Cash Flow and Liquidity - For the first half of 2025, Verizon generated $16.76 billion in net cash from operating activities, with free cash flow of $5.17 billion for the quarter [13]. Guidance - Verizon expects wireless service revenue growth in the range of 2%-2.8% for 2025, with adjusted EBITDA growth projected at 2.5%-3.5% [14].

Core Viewpoint - AT&T is significantly enhancing its fiber internet strategy through a $5.75 billion acquisition of Lumen's Mass Markets fiber business, which will add approximately 1 million fiber subscribers and 4 million passed locations, expanding its presence in major metro areas [1][2]. Expansion Plans - Prior to the acquisition, AT&T aimed to pass 50 million fiber locations by the end of 2029; with the Lumen deal, this target has been raised to 60 million by the end of 2030, effectively doubling the current scale of its fiber network [2]. - The acquisition will allow AT&T to expand its fiber reach without incurring all the capital expenditures typically associated with such growth, as it plans to partner with an equity investor post-transaction [4][5]. Financial Strategy - AT&T intends to maintain a net debt to adjusted EBITDA ratio of around 2.5 after the Lumen deal closes and the equity partner is found, while also planning to repurchase $10 billion of its own shares through the end of 2026 [6]. - The company expects to generate free cash flow of at least $16 billion this year, with its stock trading at over 12 times free cash flow, indicating a solid value proposition despite not being as cheap as in previous years [11]. Growth Opportunities - Lumen's fiber business has a penetration rate of approximately 25%, significantly lower than AT&T's 40% and half of its long-term target of 50%. Improving this penetration rate presents a low-cost growth opportunity for AT&T [8]. - There is potential for AT&T to sell its wireless services to the 1 million acquired fiber customers, as about 40% of AT&T's fiber customers are also wireless customers, which could lead to lower churn and higher lifetime value [9]. Strategic Acquisition - The acquisition of Lumen's fiber assets provides AT&T with an immediate increase in fiber subscribers and a pathway to expand its fiber network beyond previous plans, while also ensuring financial prudence through equity partnerships [10].

Core Insights - Verizon Communications Inc. reported strong first-quarter 2025 results with adjusted earnings and revenues surpassing Zacks Consensus Estimates [1][2] Financial Performance - Net income for the quarter was $4.98 billion, or $1.15 per share, compared to $4.72 billion, or $1.09 per share, in the same quarter last year, driven by top-line growth [2] - Adjusted earnings were $1.19 per share, up from $1.15 year-over-year, beating the consensus estimate by 3 cents [2] - Total operating revenues increased by 1.5% to $33.48 billion, exceeding the consensus estimate of $33.32 billion, supported by growth in service revenues and higher wireless equipment revenues [3] Segment Results - Consumer segment revenues rose 2.2% year-over-year to $25.62 billion, surpassing estimates of $25.23 billion, with service revenues up 2.3% to $20.07 billion [4] - Business segment revenues decreased by 1.2% to $7.29 billion, below estimates of $7.35 billion, primarily due to lower wireline revenues [6] Customer Metrics - The company achieved 137,000 retail prepaid net additions, the highest since the TracFone acquisition, while retail postpaid and retail postpaid phone net additions contracted [1] - Wireless retail postpaid churn was 1.13%, and retail postpaid phone churn was 0.9% [5] - Fios Internet net additions were 41,000, while fixed wireless broadband net additions reached 199,000 [5] Operating Metrics - Operating income improved to $7.98 billion, a 6.1% increase, with total operating expenses remaining flat at $25.51 billion [9] - Consolidated adjusted EBITDA rose to $12.56 billion from $12.07 billion, driven by wireless service revenue growth [10] Cash Flow and Guidance - Verizon generated $7.78 billion in net cash from operating activities, with free cash flow of $3.64 billion, up from $2.71 billion year-over-year [11] - For 2025, the company expects wireless service revenue growth of 2%-2.8% and adjusted EBITDA growth of 2%-3.5% [12]