uploads/2016/03/Telecom-Index-Performance-1.jpg

What Are US Telecom Stocks’ Valuation Levels in SPY?

By

Updated

S&P 500 Telecommunication Services Index

In this series, we’ll look broadly at the market-centric metrics of US telecom players. Let’s start with the returns of US telecom players in the S&P 500 Index. Over the last few months, US telecom stocks have generated more returns than the broader index.

Year-to-date, the returns of the S&P 500 Telecommunication Services Index and the S&P 500 were ~14.8% and ~0.8%, respectively, as of March 18, 2016. Meanwhile, the forward PE (price-to-earnings ratio) of the S&P 500 Telecommunication Services Index was ~4.2%, below its average ten-year weekly point.

Article continues below advertisement

Telecom companies in SPY

The SPDR S&P 500 ETF (SPY) held a total of ~2.8% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) as of March 17, 2016. Overall, AT&T and Verizon made up ~2.6% of the ETF as of the same date.

Enterprise value multiples

As of March 18, the current year EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples of the integrated telecom players AT&T and Verizon were ~6.6x and ~7x, respectively.

Meanwhile, CenturyLink and Frontier Communications had comparable metrics at ~5.6x and ~5.5x, respectively. As of March 18, Level 3 Communications was trading at a current year EV-to-EBITDA multiple of ~10.2x.

Dividend yield

Now let’s look at the forward dividend yields of the US telecom players in the S&P 500. As of March 18, 2016, the dividend yield metrics for AT&T and Verizon were at ~5% and ~4.3%, respectively.

As of the same date, CenturyLink and Frontier Communications had forward dividend yields of ~6.8% and ~8%, respectively.

Advertisement

More From Market Realist