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ETFs in Focus After Sprint & CenturyLink Earnings Release

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We are past the halfway mark of the first quarter reporting cycle. Two telecom giants released their results yesterday. Amid increased M&A activity in the telecom industry and mixed results of competitors, let’s have a look at how Sprint Corporation (S - Free Report) and CenturyLink fared in their recent releases.


Sprint’s Q4 Performance


Sprint’s loss per share
of $0.07 for the fourth quarter of fiscal 2016 was wider than the Zacks Consensus Estimate of a loss of $0.04. However, fourth-quarter revenues of $8.539 billion beat the consensus mark of $7.966 billion and were up over 5.3% year over year. Moreover, operating income increased to $470 million from $8 million in the year-ago period.


Shares of Sprint dropped over 14.3% at market close on Wednesday, May 3, 2017 as the company’s bottom line missed estimates.  However, it reflected an improvement of 50% year over year.


Service segment revenues decreased to $6.116 billion from $6.574 billion a year ago.


Equipment revenues increased to $2.423 billion from $1.497 billion in the year-ago period.


Sprint lost 118,000 net postpaid customers in the quarter. However, it added 180,000 prepaid customers and 125,000 wholesale customers. The company’s average revenue per user (ARPU) for postpaid came in at $47.34 and $30.08 for prepaid.


Outlook


Sprint expects its operating income to be in the range of $2-$2.5 billion for fiscal 2017. It expects its capital expenditures to be somewhere between $3.5-$4 billion and adjusted EBITDA in the range of $10.7-$11.2 billion.


CenturyLink’s Q1 Performance


Shares of CenturyLink dropped over 3.8% in after-hours trading on Wednesday, May 3, 2017 as the company missed top- and bottom-line estimates for the first quarter of 2017.


CenturyLink’s earnings per share (EPS) of $0.52 slightly missed the Zacks Consensus Estimate of $0.53. Moreover, first quarter revenues of $4.209 billion fell short of the consensus mark of $4.269 billion. Non- GAAP operating income decreased to $602 million from $708 million in the year ago period. While revenues decreased 4.3% year over year, earnings declined 26.7%.


Strategic segment revenues increased to $2.0 billion from $1.989 billion a year ago.


Legacy revenues decreased to $1.803 billion from $1.988 billion in the year-ago period.


Data integration segment revenues increased to $118 million from $116 million a year ago.


Other revenues decreased to $288 million from $308 million a year ago.


Outlook


CenturyLink expects its operating revenues to be in the range of $4.07-$4.13 billion for second quarter 2017. It expects its core revenues to be somewhere between $3.66-$3.72 billion and adjusted EPS in the range of $0.46-$0.52. Moreover, it expects operating cash flow to be in the range of $1.40-$1.46 billion.


In the current scenario, let’s have a look at some ETFs that have a relatively high exposure to Sprint and Century Link.


Vanguard Telecommunication Services ETF (VOX - Free Report) :


This ETF is one of the most popular funds in the telecom space (read: Welcome Trump Era with These ETFs).


It has AUM of $1.40 billion and charges 10 basis points as fees per year. The fund has a 4% exposure to CenturyLink and 3.1% to Sprint (as of March 31, 2017). The fund returned 3.39% in the last one year but lost 5.67% in the year-to-date time frame (as of April 25, 2017). It closed 2.24% lower on Wednesday, May 3, 2017. VOX currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


Fidelity MSCI Telecommunication Services ETF (FCOM - Free Report) :


This ETF provides exposure to the U.S. telecom space at a really low expense ratio.


It has AUM of $140.2 million and charges 8 basis points as fees per year. The fund has a 4% exposure to CenturyLink and 2.84% to Sprint (as of May 2, 2017). The fund returned 10.0% in the last one year and 1.12% in the year-to-date time frame (as of May 3, 2017). It closed 0.55% lower on Wednesday, May 3, 2017. FCOM currently has a Zacks ETF Rank #3 with a Medium risk outlook (read: Telecom ETFs: What Lies Ahead in 2017?).


iShares U.S. Telecommunications ETF (IYZ - Free Report)


This ETF provides exposure to the U.S. telecom industry.


It has AUM of $498.85 million and charges 44 basis points as fees per year. The fund has a 6.52% exposure to CenturyLink and 5.25% to Sprint (as of May 2, 2017). The fund returned 7.0% in the last one year but lost 4.78% in the year-to-date time frame (as of May 3, 2017). It closed 3.50% lower on Wednesday, May 3, 2017. IYZ currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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