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AT&T (T) Q3 Earnings: What's in Store for the Stock?

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U.S. telecom giant AT&T Inc. (T - Free Report) is scheduled to report third-quarter 2016 financial numbers on Oct 25, after markets close.

Last quarter, AT&T posted an earnings surprise of 0.00%. However, the company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average beat of 2.90%. Let’s see how things are shaping up for this announcement.

Factors at Play

Acquisitions and strategic collaborations have played a major role in shaping AT&T’s growth story. The company has fortified in the content and online streaming space with the DirecTV acquisition in 2015. Toward this end, the company recently signed a multi-year deal with Taylor Swift for its DirecTV's Super Saturday Night event and a carriage deal with Viacom Inc. for DirecTV Now. The company is also planning to phase out its U-verse brand and upgrade plans. AT&T also intends to launch its over the top (OTT) online streaming service DIRECTV Now by the end of 2016. In sync with this, the company has strengthened its DIRECTV Now Portfolio, courtesy of its deal with HBO which will allow it to deliver Time Warner Inc. -owned HBO content across multiple platforms through satellite, online streaming and cable-based U-verse. AT&T has also signed a carriage deal with Discovery Communications Inc. which will provide its customers with access to the latter’s linear channels, including on-demand and TV Everywhere rights on AT&T U-verse and the DirecTV platform.

Recently, AT&T teamed up with Qualcomm to evaluate Unmanned Aircraft Systems (UAS) or drones on commercial 4G LTE networks. The company launched the 1 gigabit per second (Gbps) service in the greater Sacramento area, in parts of St. Louis, St. Charles and University City and in Roseville, Rocklin, Lincoln and surrounding localities. The company is also expanding its 4G LTE wireless networks in Mexico.

AT&T’s partnership plans with International Business Machines Corporation (IBM - Free Report) and Amazon Web Services Inc., a subsidiary of Amazon.com, Inc. (AMZN - Free Report) , should boost its cloud suite and IT services. Meanwhile, AT&T and Intel Corporation have tied up to develop software-centric network technologies.

The company is also moving ahead with plans to introduce its Enhanced Control, Orchestration, Management and Policy (ECOMP) virtualization platform in the open source industry in the first quarter of 2017.

AT&T entered into an agreement with Cuba’s state-run telecommunications company Empresa de Telecomunicaciones de Cuba (ETECSA) to introduce direct roaming mobile interconnection services between the two countries. AT&T has been redesigning its data plans in order to entice customers who have high data requirements.

Yet, a saturated wireless market, spectrum crunch, persistent losses in access lines, stringent regulatory measures by the FCC, threat of strike from Internet workforce and tough competition are major dampeners. However, the company has reached a new agreement with Communication Workers of America (CWA) covering the former’s DIRECTV employees in the Midwest, Southeast and Southwest regions.

Earnings Whispers

Our proven model does not conclusively show that AT&Tis likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP : AT&T has an Earnings ESP of -1.35%. This is because the Most Accurate estimate stands at 73 cents while the Zacks Consensus Estimate is pegged higher at 74 cents.

Zacks Rank : AT&T has a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

AT&T INC Price and EPS Surprise

 

AT&T INC Price and EPS Surprise | AT&T INC Quote

Stock to Consider

Here’s a company that has the right combination of elements to post an earnings beat this quarter.

Apple Inc. (AAPL - Free Report) , with an earnings ESP of +1.21% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. The company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters.

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