Tactical Setup Favors Cable Stocks Over Telecoms Ahead Of Earnings: Barclays By Investing.com

Investing.com — Analysts at Barclays signaled a strategic shift in favor of cable stocks over telecom companies in a note on Wednesday as the industry heads into its third quarter earnings season.

Historically, Barclays has favored telecom stocks, with an equally weighted basket of AT&T (NYSE: ), T-Mobile and Verizon (NYSE: ) outperforming cable peers such as Comcast (NASDAQ: ) and Charter by 26% vs. of a decrease of 12%.

However, analysts now see potential for cable stocks to outperform in the near term.

Barclays says telcos may face challenges as they increasingly rely on price increases to drive revenue, which could lead to a drop in volume.

“We will also see AT&T’s loss rate begin to increase in the coming quarters due to its promotions,” the note said. Additionally, the bank says TMUS has recently lowered its growth guidance, citing the impact of the Affordable Connectivity Program (ACP).

“With TMUS also pointing to over $20 billion of dry powder for potential organic and inorganic investment, in addition to other uses and the proliferation of fiber JVs/anchor operator agreements, M&A is likely to be a concern growing,” adds Barclays.

Cable stocks, on the other hand, enter earnings season with more reasonable expectations of subscriber losses. There is also the potential for Congress to reconsider the ACP after the election, which could have a positive impact on the growth of cable providers next year.

While Barclays anticipates that cable may outperform telecoms in the upcoming earnings report, they caution that this may be a tactical move rather than a long-term trend. The firm points out that while the long-term outlook for telecom remains better than that for cable, it may become increasingly difficult for telcos to sustain their recent performance as they head into next year.