Battered TV and Advertising Industries Undervalued
Rebound has been uneven in the sector.
Rebound has been uneven in the sector.
The Morningstar US Communication Services Index has bounced back nicely along with the broader market, gaining 25% since the end of March versus a 23% gain for the Morningstar US Market Index. Facebook, which accounts for about 18% of the sector index, has been the star performer, gaining about 43% over this period and shooting to a 10% premium to our fair value estimate. Traditional telecom stocks, less affected during the market sell-off, have underperformed. AT&T and Verizon, which account for a combined 15% of the index, have gained only about 4% each. Of the two telecom giants, AT&T is more attractive, trading at an 18% discount to our fair value estimate and providing a 7% dividend yield that we believe is sustainable. AT&T has made numerous strategic missteps over the past few years, but we expect it will adhere to a more prudent path under new CEO John Stankey.
The sector has followed the market thanks to winners like Facebook. - source: Morningstar
Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.