Company 1: AT&T, Inc.
Brief History: AT&T, Inc. is one of the leading telecommunications and broadband companies in the USA. It is the largest provider of fixed phone lines and the second largest mobile phone provider in the U.S. AT&T also offers broadband subscription TV, Internet, sells handsets, computers, and provides other similar services and products.
The company has a long history dating back to the foundation of the Bell Telephone Company by Alexander Bell in 1877. In 1885, it established a subsidiary American Telephone and Telegraph Company (AT&T), which acquired the Bell Telephone Company and became a parent in 1899. The influence of the AT&T grew over time, and in 1982, the US regulators forced its breakup into seven smaller individual companies called Baby Bells. In 2005, one of them, SBC Communications, purchased another Baby Bell (AT&T Corporation). This is how the present AT&T, Inc. was established.
AT&T is ranked as the 12th world’s most valuable brand according to Forbes, and it is #27 on the Forbes Global 2000. Moreover, AT&T has been a Dow Jones Industrial Average component till 2015.
Company 2: Verizon Communications, Inc.
Brief History: Verizon Communications, Inc. is one of the leading broadband and telecommunications companies operating in the USA. It is the largest American wireless service provider. The company offers communication services (Internet, phone, TV, and wireless) to private individuals as well as businesses and governmental agencies. Moreover, it sells cell phones, tablets, modems, accessories and other similar products to the public.
The history of Verizon Communications, Inc. also dates back to the creation of the Bell Telephone Company. VZ appeared in 2000 as a result of the merging of one of the Baby Bells (Bell Atlantic) with GTE. The $52 billion merger was one of the largest in the U.S. business history. In the same year, the company together with Vodafone AirTouch created a joint venture Verizon Wireless which generates the greatest portion of VZ’s revenues. In 2014, Verizon Communications acquired Vodafone’s 45% share in Verizon Wireless.
It should be also noted that due to its size and influence, VZ became a component of the Dow Jones Industrial Average in 2004. Besides, Verizon Communications is one of the World’s most valuable brands (#21 according to Forbes) and #22 Forbes Global 2000.
NASDAQ Symbols:
AT&T, Inc. – T
Verizon Communications, Inc. – VZ
Verizon Communications, Inc. beats AT&T, Inc. in almost all the categories, so it appears to be a better investment. A detailed comparison of the two companies is presented below.
Profitability
The profit margins and ROA of both companies fell significantly in the one year span due to a decrease in net income. However, according to the CSIMarket data, these ratios were above the communications service industry average in 2014. Thus, in 2014, the industry average profit margin was 4% (5% and 9% for AT&T and VZ respectively) and ROA was 2% (compared to 2% and 5% for AT&T and VZ respectively). As the figures show, Verizon Communications has stronger profitability ratios than its competitor. Besides, VZ posts a spectacular increase in ROE from 13-14 as this ratio more than tripled to 87% in 2014 while AT&T’s ROE dropped 13% to only 7% in the same period. Thereby, Verizon Communications provides a higher income for every dollar invested to its shareholders. Moreover, nowadays Verizon Communications, Inc. still seems to be more profitable than AT&T, Inc. Based on the information provided by Google Finance, VZ’s ROA and ROE exceed the ratios of its competitor considerably. Besides, VZ offers higher dividends than AT&T according to the dividend history information provided by NASDAQ.
Winner: Verizon Communications
Asset Utilization
Both companies have high receivable and inventory turnovers which are in line with those of the majority of their competitors. Thus, in 2014, the industry average receivable turnover was 9.42 and industry inventory turnover was 113.75. However, VZ collects its receivables slightly quicker than AT&T and sells its goods more efficiently than its competitor, as the AT&T’s inventory ratio significantly dropped by 63% from 13-14 (though still remaining high).
The fixed assets and total assets turnovers of both companies are rather low, but this may be attributed to the industry type. As Verizon and AT&T operate in the technology sector, they have large sums of money invested in PPE, central office equipment in particular. However, Verizon Communications also has a slight advantage over its competitor in these categories.
Winner: Verizon Communications
Liquidity and Debt Utilization
VZ has a better short-term liquidity as its competitor doesn’t even have enough current assets to cover its current liabilities. This is an alarming sign for potential investors and creditors. However, AT&T shows positive dynamics of current and quick ratios in the one year span, while the VZ’s liquidity ratios dropped more than twice. This is mainly explained by a significant decrease in VZ’s cash & cash equivalents from 13-14, while its other current assets and liabilities remained approximately the same.
The debt utilization ratios show that both companies are mainly financed through debt, but the Verizon Communications’ DTA is particularly alarming. It rose up to 95% in 2014 due to a decrease in equity, and such a situation presents a high risk for the company. VZ also attracted new long-term liabilities which resulted in a higher interest expense and led to a lower times-interest-earned ratio in 2014. However, the AT&T’s TIE ratio also dropped in 2014 due to a lower EBIT, and Verizon beats its competitor in this category. As regards the financial coverage of fixed charges, both companies had approximately the same figures in 2014.
Winner: Verizon Communications
As it can be seen, Verizon Communications has the advantage over AT&T in a majority of the categories. It has better profitability ratios, generates more income for its shareholders, has a better liquidity position, and manages its assets more efficiently.
Bibliography
AT&T. (2016, April 3). Retrieved April 16, 2016, from Wikipedia: https://en.wikipedia.org/wiki/AT%26T
AT&T 2013 Annual Report. (2014, February 21). Retrieved April 14, 2016, from AT&T Investor Relations: http://www.att.com/Investor/ATT_Annual/2013/downloads/ar2013_annual_report.pdf
AT&T 2014 Annual Report. (2015, February 20). Retrieved April 14, 2016, from AT&T Investor Relations: http://www.att.com/Investor/ATT_Annual/2014/downloads/att_ar2014_annualreport.pdf
AT&T Inc. Dividend Date & History. (2016, April). Retrieved April 16, 2016, from NASDAQ: http://www.nasdaq.com/symbol/t/dividend-history
AT&T, Inc. (T) Key Statistics. (2016, April). Retrieved April 15, 2016, from Google Finance: http://finance.yahoo.com/q/ks?s=T+Key+Statistics
AT&T on Forbes Lists. (2016). Retrieved April 16, 2016, from Forbes: http://www.forbes.com/companies/att/
Communications Services Industry Efficiency Information & Trends. (2016). Retrieved April 16, 2016, from CSI Market: http://csimarket.com/Industry/industry_Efficiency.php?ind=905
Communications Services Industry Management Effectiveness Information & Trends. (2016). Retrieved April 16, 2016, from CSI Market: http://csimarket.com/Industry/industry_ManagementEffectiveness.php?ind=905
Communications Services Industry Profitability Information & Trends. (2016). Retrieved April 16, 2016, from CSI Market: http://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=905
Computation of ratio of earnings to fixed charges. (n.d.). Retrieved April 16, 2016, from https://www.sec.gov/Archives/edgar/data/108772/000119312510043079/dex12.htm
Verizon 2013 Annual Report. (2014, February 27). Retrieved April 14, 2016, from Verizon Investors Annual Reports: http://www.verizon.com/about/sites/default/files/2013_vz_annual_report.pdf
Verizon 2014 Annual Report. (2015, February 23). Retrieved April 14, 2016, from Verizon Investors Annual Reports: http://www.verizon.com/about/sites/default/files/2014_vz_annual_report.pdf
Verizon Communications Inc. Dividend Date & History. (2016, April). Retrieved April 16, 2016, from NASDAQ: http://www.nasdaq.com/symbol/vz/dividend-history
Verizon Communications Inc. Stock Report. (2016, April 9). Retrieved April 16, 2016, from http://advisor.marketscope.com/SP/msa/reports.pdf?reportURL=/EQ/pdf/sr/9/92343v10.pdf
Verizon Communications on Forbes Lists. (2016). Retrieved April 16, 2016, from Forbes: http://www.forbes.com/companies/verizon-communications/
Verizon History and Timeline. (2016). Retrieved April 16, 2016, from Verizon: http://www.verizon.com/about/our-company/history-timeline
VZ Key Statistics. (2016, April). Retrieved April 15, 2016, from Google Finance: http://finance.yahoo.com/q/ks?s=VZ+Key+Statistics
