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Will Lower Consolidated Revenues Hurt AT&T (T) Q4 Earnings?

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AT&T Inc. (T - Free Report) is scheduled to report fourth-quarter 2021 results, before the opening bell, on Jan 26. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 9 cents. In the fourth quarter, the company is likely to have recorded lower revenues year over year despite improving market conditions due to continued infrastructure investments for 5G rollout across the country.

Factors at Play

In the fourth quarter, AT&T continued to expand its 5G network infrastructure and launched 5G+ service in select areas. The company’s 5G network currently covers more than 250 million users in 14,000 cities across the country and its 5G+ network is available in parts of 39 cities. AT&T is benefiting from lower levels of wireless churn due to seamless access to 5G technology on its unlimited wireless plans for consumers and businesses and the growing adoption of Unlimited Elite wireless plans. Such initiatives are likely to get reflected in the upcoming results.  

During the to-be-reported quarter, the U.S. Air Force selected the FirstNet network of AT&T to deliver reliable communications to its public safety personnel across 15 bases across the country. This is likely to have helped the company establish its market-leading position within the law enforcement community. In addition, AT&T introduced comprehensive, advanced security capabilities for 5G network deployments. This firewall service will support its 5G edge computing network solutions and improve threat visibility, pre-empt advanced attacks at the application layer and secure networks.

AT&T also inked multi-year agreements with Frontier Communications to support the deployment of its 5G mobility network. Together with Frontier, AT&T will offer large enterprise customers high-speed, low-latency and highly secure connectivity in markets where it does not own a fiber network. The solutions are likely to facilitate diverse businesses to better harness edge connections and edge computing capabilities to swiftly convert data into actionable intelligence, enabling unique digital experiences and smarter operations.

During the quarter, AT&T collaborated with Ford Motor to enhance the Rouge Electric Vehicle Center by outfitting it with highly secure, next-generation 5G cellular connectivity to develop the new all-electric Ford F-150 Lightning pickup. It partnered with GE Research to explore the possibility of its cross-industry 5G testbed at the research facility in Niskayuna, NY. The addition of AT&T's 5G network will likely provide GE Research with the most advanced networking capabilities to utilize both high and low-band 5G to uncover new opportunities to advance clean energy, air transportation and precision health. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division within the Communications segment.

However, adverse foreign currency translations and high operating costs for 5G deployments are likely to have led to soft margins in the quarter. The company expects to connect significant locations with fiber as it aims to expand its fiber builds in metro areas. These infrastructure investments are likely to have weighed on the margins. TV content-cost pressure, high programming costs and new video platform expenses are also likely to have hurt the bottom line.

The Zacks Consensus Estimate for total revenues of the company stands at $40,705 million, indicating a decline from $45,691 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 76 cents per share. It had reported 75 cents in the year-earlier quarter.

Key Developments in Q4

AT&T’s game-changing deal with Discovery, Inc. for the divesture of its WarnerMedia business got a big boost in the fourth quarter, with the European Commission granting unconditional antitrust clearance for the transaction. AT&T expects the merger to be completed by mid-2022. The transaction aims to spin off the carrier’s media assets and merge them with the complementary assets of Discovery. The transaction is expected to enable the carrier to trim its huge debt burden and focus on core businesses. The separation of the media assets is likely to offer the company an opportunity to better align its communications business with a focused total return capital allocation strategy.

AT&T has also decided to sell its advertising and analytics division, Xandr, to Microsoft for an undisclosed amount. Xandr’s advanced technology complements Microsoft’s advertising offerings and will help accelerate the delivery of digital advertising and retail media solutions for the open web. The deal combines Microsoft’s audience intelligence and advertising customer base with Xandr’s platform.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the fourth 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 not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.71%. 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.

Stocks to Consider

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

F5, Inc. (FFIV - Free Report) is set to release quarterly numbers on Jan 25. It has an Earnings ESP of +1.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Cirrus Logic, Inc. (CRUS - Free Report) is +1.48% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Jan 31.

The Earnings ESP for Meta Platforms, Inc. is +2.52% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 2.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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