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Telecom Stock Roundup: Verizon, Ericsson Surpass Q3 Earnings Estimates & More

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In the past week, the U.S. telecom stocks mirrored the broader benchmark indices and trended down as hopes of consensus on additional stimulus faded, at least until the Presidential elections. The Sino-U.S. technology warfare further seemed to polarize the industry into two distinct halves, bringing an element of uncertainty within the telecom sector. Washington continued to pile up pressure on allied countries to deter the presence of China-based communication equipment manufacturers Huawei and ZTE in their 5G networks. The political slugfest for 5G supremacy in the backdrop dovetailed with the administrative efforts to set guardrails and legislation to safeguard domestic interests. However, the stocks reported an uptrend toward the end of the past five trading days with better-than-expected quarterly earnings performance.

The Trump administration has stepped up the offensive against Huawei and offered financing options to Brazil to purchase telecommunications equipment from its rivals for 5G deployment in the next year. The U.S. delegation with officials from the International Development Finance Corporation, the U.S. EXIM bank and the National Security Council urged the South American nation to disown China-based equipment due to perceived threats to national security owing to siphoning of sensitive data. The U.S. government is also ready to offer loans to other developing nations to weed off Chinese telecommunications gear and hardware replacement from its competitors.

Notably, several leading U.S. telecom carriers have turned to Indian handset manufacturers to lower their dependence on China as the technology cold war intensifies. Verizon, T-Mobile and AT&T have reportedly initiated negotiation with Indian smartphone makers, including Micromax and Lava, to procure unbranded low-cost handsets that will be bundled with data subscription deals in the United States. The shift in manufacturing base away from the communist nation is likely to be more pronounced in the near future with the backing from the federal government.

Meanwhile, the Federal Communications Commission (“FCC”) has asked the Justice Department and other related U.S. agencies to examine whether China Unicom’s presence in the country actually pose any national security risks. In April, the Department of Justice along with other federal agencies had sought the permission of the FCC to revoke the license of China Unicom on perceived threats. The FCC is now seeking to expediate the process and has sought the thorough report by mid-November.

Regarding company-specific news, earnings and acquisition took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     Despite coronavirus-induced turmoil, Verizon Communications Inc. (VZ - Free Report) reported relatively healthy third-quarter 2020 results, with the bottom line comfortably beating the Zacks Consensus Estimate. This highlights a disciplined network strategy for long-term growth along with a focused roadmap for technology leadership. Verizon expects to witness strong 5G momentum heading into the fourth quarter of 2020 backed by customer-centric business model and diligent execution of operational plans.

Excluding non-recurring items, non-GAAP net income for the reported quarter was flat at $1.25 per share and surpassed the Zacks Consensus Estimate by 3 cents. Quarterly aggregate operating revenues declined 4.1% year over year to $31,543 million. This was the result of substantial decline in wireless equipment revenues in the Consumer and Business segments, primarily due to limited customer engagement and the impact of COVID-19 on customer behavior. The top line missed the consensus estimate of $31,572 million.
2.     Ericsson (ERIC - Free Report) reported decent third-quarter 2020 results, wherein the bottom line beat the Zacks Consensus Estimate. The Sweden-based telecom equipment provider stated that the COVID-19 pandemic has so far had a limited impact on its business. The 5G contracts in Mainland China have developed according to plan, contributing to profits in the quarter.

Net income in the September-ended quarter was SEK 5,353 million ($603.3 million) or SEK 1.61 (20 cents) per share against a net loss of SEK 6,229 million or loss of SEK 1.89 per share in the prior-year quarter. The improvement was driven by strong operating income and higher financial net. The bottom line beat the Zacks Consensus Estimate by 4 cents, delivering a positive surprise of 25%. Quarterly net sales inched up 0.6% year over year to SEK 57,472 million ($6,476.7 million), primarily driven by 5G deployments in North-East Asia and North America. The top line lagged the consensus estimate of $6,520 million.

3.     Badger Meter, Inc. (BMI - Free Report) reported impressive third-quarter 2020 results, with net earnings and revenues increasing year over year.

Quarterly net earnings for the reported quarter were $14.9 million or 51 cents per share compared with $12.7 million or 44 cents per share in the year-ago quarter. The year-over-year improvement can be primarily attributed to higher revenues. Further, the bottom line beat the Zacks Consensus Estimate by 11 cents. Quarterly net sales increased to $113.6 million from $108.6 million in the year-ago quarter due to a surge in manufacturing output with consistent demand post COVID-19-induced lockdown. The top line surpassed the consensus mark of $104 million.

4.      Iridium Communications Inc. (IRDM - Free Report) reported relatively healthy third-quarter 2020 results, with GAAP net loss narrowing year over year on higher revenues.

On a GAAP basis, net loss was $4 million or loss of 3 cents per share compared with net loss of $18 million or loss of 14 cents per share in the prior-year quarter. The year-over-year improvement was mainly driven by higher revenues and lower selling, general and administrative expenses. The bottom line was narrower than the Zacks Consensus Estimate of a loss of 12 cents. Quarterly revenues totaled $151.5 million compared with $144.8 million in the year-ago quarter. The top line surpassed the consensus mark of $138 million.  

5.      Juniper Networks, Inc. (JNPR - Free Report) has inked an agreement to acquire smart wide area networking startup — 128 Technology, Inc. — for $450 million. Through the deal, the network products and services provider aims to expand its footprint in the AI-driven enterprise solutions.

The acquiree will be integrated with Juniper’s AI-driven Enterprise business unit, which includes wired and wireless access and SD-WAN. The combined portfolio will give customers a unified platform for optimized user experiences from client to cloud.

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and the six months.

In the past five trading days, Motorola has been the sole performer with its stock up 2.1%, while Arista was the biggest decliner with its stock falling 6.4%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 42.6%, while AT&T was the biggest decliner with its stock falling 10.4%.

Over the past six months, the Zacks Telecommunications Services industry has rallied 2.7% and the S&P 500 has gained 22.8%.

What’s Next in the Telecom Space?

In addition to the 5G deployments and product launches, all eyes will remain glued to how the earnings season unfurls for the sector.

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