Back to top

Image: Bigstock

Can Higher Communications Revenues Aid AT&T (T) Q4 Earnings?

Read MoreHide Full Article

AT&T Inc. (T - Free Report) is scheduled to report fourth-quarter 2022 results, before the opening bell, on Jan 25. In the fourth quarter, the Communications segment is likely to have recorded year-over-year higher revenues owing to a healthy momentum in the wireless business.

Factors at Play

The Communications segment has three business units — Mobility, Entertainment Group and Business Wireline.

In the fourth quarter, AT&T expanded its 5G network infrastructure and launched 5G+ service in select areas. The company’s 5G network currently covers more than 281 million users across the country, and its 5G+ network is available in parts of 45 cities. AT&T has deployed the C-Band spectrum in a phased manner to further expand its 5G+ coverage. It 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 fourth quarter, AT&T continued with its aggressive fiber build-out initiatives as it aims to connect 3.5-4 million additional locations with fiber each year to significantly increase its existing fiber footprint to more than 30 million locations by the end of 2025. The company expects that 75% of its network footprint will be either served by fiber or 5G, which will likely halve its legacy copper services exposure. These simplification initiatives are likely to have driven additional cost savings while creating new revenue opportunities.

In the to-be-reported quarter, AT&T inked a definitive agreement with asset management firm BlackRock to form a joint venture that will operate a commercial fiber platform to tap the lucrative fiber optic business. Dubbed Gigapower LLC, the joint venture initiative will leverage its extensive fiber network and nationwide sales capabilities to commercially deploy a fiber network at 1.5 million customer locations outside the perimeter of its traditional 21-state wireline service footprint. This is likely to have translated into incremental revenues.

However, adverse foreign currency translations and high operating costs for 5G deployments are likely to have led to soft margins in the fourth quarter. The company expects to connect significant locations with fiber as it aims to expand its fiber builds in metro areas. Continuous infrastructure investments for fiber and 5G deployments are likely to have weighed on the margins.

The company’s wireline division is also struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. AT&T is facing a steady decline in linear TV subscribers and legacy services. High-speed Internet revenues are also contracting due to the legacy Digital Subscriber Line decline, simplified pricing and bundle discount.

Overall Expectations

The Zacks Consensus Estimate for revenues from Communications is pegged at $30,537 million, indicating a marginal improvement from $30,206 million reported in the year-ago quarter. The consensus mark for EBITDA from the segment stands at $11,238 million, suggesting a rise from $10,607 million.

The Zacks Consensus Estimate for total revenues of the company stands at $31,411 million, indicating a decline from $40,958 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 59 cents per share. It had reported earnings of 78 cents per share in the year-earlier quarter.

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 -5.98%, with the former pegged at 55 cents and the latter at 59 cents. 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:

Verizon Communications Inc. (VZ - Free Report) is set to release quarterly numbers on Feb 24. It has an Earnings ESP of +0.42% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T-Mobile US, Inc. (TMUS - Free Report) is +3.00% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 1.

The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +10.48% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 1.

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

Published in