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Will Higher Consolidated Revenues Buoy AT&T (T) Q2 Earnings?

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AT&T Inc. (T - Free Report) is scheduled to report second-quarter 2021 results, before the opening bell, on Jul 22. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 9 cents. In the second quarter, the company is likely to have recorded higher revenues year over year due to improving market conditions and steady infrastructure investments for 5G deployment across the country.

Factors at Play

In the second quarter, AT&T continued to expand its 5G network infrastructure and launched 5G+ service in select areas. The company’s 5G network currently covers nearly 250 million users in 14,000 cities across the country, and its 5G+ network is available in 38 cities. AT&T is benefiting from lower levels of wireless churn due to access to 5G on its unlimited wireless plans for consumers and businesses and growing adoption of Unlimited Elite wireless plans. Such initiatives are likely to get reflected in the upcoming results.  

During the to-be-reported quarter, AT&T collaborated with Cisco Systems, Inc. in order to better adapt to the evolving communication requirements of the hybrid workforce and embrace the ‘new normal’. The deal enabled AT&T to leverage Cisco’s Unified Communications Manager Cloud to expand and customize the broader Webex portfolio with its own gamut of services such as 5G, SD WAN, mobility, fiber and IP infrastructure to better serve various ecosystems. In addition, it partnered with Microsoft to move its 5G mobile network to the latter’s cloud. This is likely to help AT&T enhance its productivity and deliver large-scale network services by using Microsoft’s hybrid infrastructure, thereby decreasing engineering and development costs. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

During the quarter, AT&T extended its FirstNet coverage in the country with the addition of purpose-built cell site and other network investments at various places. The FirstNet network presently covers more than 2.71 million square miles supporting in excess of 2 million connections nationwide. These facilities have enabled the company to expand public communication capabilities with dedicated broadband network for any emergency support by leveraging its high-quality spectrum, Band 14, for reliable connectivity. This is likely to have led to top-line growth in the second quarter.

However, adverse foreign currency translations and high operating costs for 5G deployments are likely to have led to soft margins in the quarter. TV content-cost pressure, high programming costs and new video platform expenses are also likely to have contracted the bottom line. High acquisition costs for mid-band spectrum are likely to have strained the exchequer.

The Zacks Consensus Estimate for total revenues of the company stands at $42,649 million, indicating an improvement from $40,950 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 78 cents per share. It had reported 83 cents in the year-earlier quarter.

Key Developments in Q2

AT&T inked a definitive agreement with Discovery, Inc. to spin off its media assets and merge them with the complementary assets of the latter to form a standalone global entertainment company amid continuous cord-cutting in U.S. households. AT&T will receive $43 billion in a combination of cash and debt securities and will own 71% of the new entity. The transaction is expected to enable the carrier to trim its huge debt burden and focus on core businesses. The cash resources are likely to be utilized to augment its network infrastructure throughout the country and expand its fiber footprint.

The separation of the media assets are likely to offer the company an opportunity to better align its communications business with a focused total return capital allocation strategy. Moreover, a focused entertainment company is likely to be better placed to capitalize on the booming direct-to-consumer (DTC) streaming services market and unlock value from media assets. This, in turn, could help it to reinvest in the new entity for more content and digital innovation in order to scale the global DTC business. The transaction is expected to generate cost synergies of $3 billion per year resulting from technology, marketing and platform savings with consolidation of DTC capabilities and elimination of duplicate initiatives.

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.83% with the former pegged at 79 cents and the latter at 78. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Nokia Corporation (NOK - Free Report) is set to release quarterly numbers on Jul 30. It has an Earnings ESP of +9.09% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Verizon Communications Inc. (VZ - Free Report) is +1.63% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Jul 21.

The Earnings ESP for T-Mobile US Inc. (TMUS - Free Report) is +13.75% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Aug 5.

In-Depth Zacks Research for the Tickers Above

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TMobile US, Inc. (TMUS) - free report >>