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The telecommunications services industry has been benefiting from the significant demand of high-end smartphones and tablets. Unprecedented growth in high-speed mobile Internet traffic, in particular for wireless data and video, has transformed the industry into the most evolving, inventive, and keenly contested space. Any new network standard aims at faster data connectivity, quick video streaming with high resolution and rich multimedia applications.
Nevertheless, the U.S. wireless industry is facing acute spectrum shortage, resulting in data packet dropping at times. Carriers are concentrating on acquiring as well as effectively utilizing spectrums. In recent times, the U.S. telecom industry has been witnessing massive consolidation. This trend is expected to continue in the near-term due to shortage of airwaves and for attaining economies of scale.
The U.S. currently accounts for 70% of 4G LTE (Long term Evolution) subscribers in the world. The Federal Communications Commission (FCC) has projected mobile data demand to grow 25-50 folds over the next five years and has decided to free up spectrum currently used by TV broadcasters for commercial wireless networks.
Given these positives, it might be a good idea to zero in on a handful of telecom services stocks that are poised to beat earnings estimates this quarter. An earnings beat should help these stocks gain investors’ confidence and show price improvement.
How to Make a Selection?
With the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could appear to be a difficult task, but our proprietary methodology makes it fairly simple for you. One way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
For investors seeking to apply this strategy to their portfolio, we have chosen 3 telecom services stocks that may stand out this earnings season:
T-Mobile US Inc. (TMUS - Snapshot Report) is a Zacks Rank #3 stock with an Earnings ESP of +40%. The company will declare financial results for the fiscal third quarter before the opening bell on Nov 5. The Zacks Consensus Estimate for the third quarter of 2013 is 5 cents per share.
Headquartered in Bellevue, Washington, T-Mobile US is the fourth largest nationwide telecom service provider in the U.S. It also operates in Puerto Rico and the U.S. Virgin Islands. The company offers both postpaid and prepaid mobile voice, messaging and data services together with mobile broadband and wholesale wireless services.
United States Cellular Corp. (USM - Analyst Report) is a Zacks Rank #3 stock with an Earnings ESP of +430.77%. The Zacks Consensus Estimate for the third quarter of 2013 is 13 cents per share. The company will declare financial results for the fiscal third quarter before the opening bell on Nov 1.
Based in Chicago, Illinois, United States Cellular Corp. is a subsidiary of Telephone and Data Systems Inc. The company offers wireless postpaid and prepaid service plans with voice, messaging and data services.
Leap Wireless International Inc. (LEAP - Analyst Report) is a Zacks Rank #2 stock with an Earnings ESP of +22.81%. The Zacks Consensus Estimate for the third quarter of 2013 is a negative $1.14 per share. The company will declare financial results for the fiscal third quarter before the opening bell on Nov 8.
San Diego, California based Leap Wireless provides prepaid wireless services under the brand name “Cricket”. The company also provides an unlimited music download service and a flexible payment option for its customers.
While a number of sector participants are facing precarious conditions within the telecommunications space, many industry outperformers are witnessing solid growth.
We believe that the above stocks with strong fundamentals and growth prospects will help investor’s in picking the right stocks.