Investing.com -- In a note Wednesday, Barclays analysts indicated a strategic shift favoring cable stocks over telecom companies as the industry approaches the third-quarter earnings season.
Historically, Barclays has preferred telecom stocks, with an equal-weighted basket of AT&T (NYSE:T), T-Mobile, and Verizon (NYSE:VZ) outperforming cable counterparts like Comcast (NASDAQ:CMCSA) and Charter by 26% versus a 12% decline.
However, the analysts now see a potential for cable stocks to perform better in the near term.
Barclays says telecom companies may face challenges as they increasingly rely on price hikes for revenue growth, which could lead to a decrease in volume.
"We will also see AT&T’s churn starting to step up in the coming quarters due to its promo rolls," the note states. Furthermore, the bank says TMUS recently reduced its growth guidance, citing impacts from the Affordable Connectivity Program (ACP).
"With TMUS also pointing to $20bn+ of dry powder for potential organic and inorganic investments in addition to other uses and the proliferation of fiber JVs/deals with operators as anchors, M&A is also likely to be a growing concern," adds Barclays.
On the other hand, cable stocks are entering the earnings season with more reasonable expectations regarding subscriber losses. There is also potential for Congress to reconsider the ACP after the elections, which could positively impact growth for cable providers next year.
While Barclays anticipates that cable may outperform telecom in the upcoming earnings report, they caution that this may be a tactical move rather than a long-term trend. The firm emphasizes that while the long-term outlook for telecom remains better than that of cable, it may become increasingly difficult for telecom companies to sustain their recent outperformance as they head into the next year.