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The U.S. telecommunication industry is currently balanced with almost equal proportions of positive and negative influences. Deregulation, the repeal of net neutrality and the new tax reform in the Trump administration is a positive. The upcoming 5G wireless technology will also benefit the sector.
However, growing price competition for wireless services is weighing on carriers' revenue growth. Further, capital spending by the U.S. telecom carriers was moderate in 2017. Also, if rates rise amid Fed policy tightening, the sector may get punished as it is a capital-intensive sector and may need to borrow at higher rates (read: Sector ETFs & Stocks to Win or Lose on Higher Rates).
Against this backdrop, here we discuss the latest earnings releases of the two top wireless service providers and their impact on telecom ETFs.
Verizon’s second-quarter 2018 performance was carried out primarily by the wireless business. The company recorded healthy top-line growth led by solid service revenues. The bottom line also benefited from significant savings from the tax reform.
Adjusted earnings came in at $1.20 per share in Q2 compared with 96 cents in the year-earlier quarter and comfortably exceeded the Zacks Consensus Estimate of $1.14. Consolidated GAAP revenues increased 5.4% year over year to $32,203 million and exceeded the Zacks Consensus Estimate of $31,718 million.
For full-year 2018, Verizon reiterated its earlier guidance and continues to expect both GAAP revenues and adjusted earnings per share to increase by low single-digit percentage rates. The stock was up more than 1.4% on Jul 24, reflecting strong earnings but slipped 1.3% on Jul 25.
The company reported earnings on Jul 24 after market close. The company reported diluted earnings of 81 cents per share, missing the Zacks Consensus Estimate of 86 cents per share but improving 29% year over year. The company saw revenue figures of $39 billion, which also fell short of the Zacks Consensus Estimate of $39.25 billion. It missed on revenues in the first results since the Time Warner deal closed, per CNBC. The fund lost about 4.6% in the key trading session on Jul 25.
ETFs in Focus
In this kind of a mixed scenario, investors must be interested in knowing the behavior of some telecom ETFs that are heavy on the two telecom biggies (see all Telecommunication ETFs here).
This ETF is one of the most popular funds in the telecom space. The fund has a 14.8% exposure to Verizon and 11.7% to AT&T. VOX has a Zacks ETF Rank #5 (Strong Sell), with a Medium risk outlook (read: Get Greater Exposure to Communication With This Proposed ETF).
This ETF provides exposure to the U.S. telecom space at a really low expense ratio. The fund has a 24.3% to AT&T and 22.4% exposure to Verizon. FCOM has a Zacks ETF Rank #5, with a Medium risk outlook.
This ETF provides exposure to the U.S. telecom industry. The fund has 16.1% exposure to AT&T and 15.1% to Verizon. IYZ has a Zacks ETF Rank #5, with a Medium risk outlook.
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Should You Dump Telecom ETFs on Mixed Earnings?
The U.S. telecommunication industry is currently balanced with almost equal proportions of positive and negative influences. Deregulation, the repeal of net neutrality and the new tax reform in the Trump administration is a positive. The upcoming 5G wireless technology will also benefit the sector.
However, growing price competition for wireless services is weighing on carriers' revenue growth. Further, capital spending by the U.S. telecom carriers was moderate in 2017. Also, if rates rise amid Fed policy tightening, the sector may get punished as it is a capital-intensive sector and may need to borrow at higher rates (read: Sector ETFs & Stocks to Win or Lose on Higher Rates).
Against this backdrop, here we discuss the latest earnings releases of the two top wireless service providers and their impact on telecom ETFs.
Verizon (VZ - Free Report)
Verizon’s second-quarter 2018 performance was carried out primarily by the wireless business. The company recorded healthy top-line growth led by solid service revenues. The bottom line also benefited from significant savings from the tax reform.
Adjusted earnings came in at $1.20 per share in Q2 compared with 96 cents in the year-earlier quarter and comfortably exceeded the Zacks Consensus Estimate of $1.14. Consolidated GAAP revenues increased 5.4% year over year to $32,203 million and exceeded the Zacks Consensus Estimate of $31,718 million.
For full-year 2018, Verizon reiterated its earlier guidance and continues to expect both GAAP revenues and adjusted earnings per share to increase by low single-digit percentage rates. The stock was up more than 1.4% on Jul 24, reflecting strong earnings but slipped 1.3% on Jul 25.
AT&T (T - Free Report)
The company reported earnings on Jul 24 after market close. The company reported diluted earnings of 81 cents per share, missing the Zacks Consensus Estimate of 86 cents per share but improving 29% year over year. The company saw revenue figures of $39 billion, which also fell short of the Zacks Consensus Estimate of $39.25 billion. It missed on revenues in the first results since the Time Warner deal closed, per CNBC. The fund lost about 4.6% in the key trading session on Jul 25.
ETFs in Focus
In this kind of a mixed scenario, investors must be interested in knowing the behavior of some telecom ETFs that are heavy on the two telecom biggies (see all Telecommunication ETFs here).
Vanguard Telecommunication Services ETF (VOX - Free Report)
This ETF is one of the most popular funds in the telecom space. The fund has a 14.8% exposure to Verizon and 11.7% to AT&T. VOX has a Zacks ETF Rank #5 (Strong Sell), with a Medium risk outlook (read: Get Greater Exposure to Communication With This Proposed ETF).
Fidelity MSCI Telecommunication Services ETF (FCOM - Free Report)
This ETF provides exposure to the U.S. telecom space at a really low expense ratio. The fund has a 24.3% to AT&T and 22.4% exposure to Verizon. FCOM has a Zacks ETF Rank #5, with a Medium risk outlook.
iShares U.S. Telecommunications ETF (IYZ - Free Report)
This ETF provides exposure to the U.S. telecom industry. The fund has 16.1% exposure to AT&T and 15.1% to Verizon. IYZ has a Zacks ETF Rank #5, with a Medium risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>