Telecom stocks may have an underestimated "alpha opportunity," BofA Securities said in a research note Monday.

The firm reinstated coverage of US telecom companies with a buy rating on AT&T (T) and neutral ratings on Verizon (VZ) and T-Mobile (TMUS).

"Telecom stocks are under-owned by institutional investors and overlooked as being in a sleepy, mature industry," BofA said. However since 2023, T-Mobile has delivered a return of 53%, AT&T posted 84%, while Verizon fell short of the S&P 500 by 800 basis points at 27%.

Company-specific factors, instead of sector strength or macroeconomic conditions, are becoming more important as competition intensifies and strategies are more diverse, BofA said.

AT&T has the" greatest flexibility to both compete effectively and return capital," while it also "offers the highest projected return of capital" in terms of dividends and buybacks next year at 7.2% of its market cap, the note said.

Meanwhile, T-Mobile's "focus on net addition targets, coupled with a premium valuation, leaves less room for positive estimate revisions and multiple expansion," BofA said.

Regarding Verizon, BofA said the company seems to be "balancing responsible growth and protecting its premium subscriber base." However, its planned "acquisition of Frontier adds execution uncertainty and should initially pressure FCF," the note said.

Price: 28.33, Change: -0.03, Percent Change: -0.11