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Following a market rally fueled by an AI frenzy, the broader market has encountered a downturn over the past month. The telecom sector has been underperforming, with the S&P Telecom Select Industry Index losing 6.9% over the past month. This is compared to the S&P 500 Index falling by 0.94% over the past month. Whereas AT&T reported relatively healthy third-quarter 2023 results, Verizon Communications Inc. reported mixed third-quarter 2023 results, failing to beat revenue estimates.
Below, we highlight Q3 earnings results from these companies.
Earnings in Detail
Verizon Communications
On Oct 24, Verizon Communications (VZ - Free Report) reported mixed third-quarter 2023 results with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. The company is experiencing a notable surge in 5G adoption and fixed wireless broadband momentum, with strong demand for FIOS and fixed wireless products driving strong broadband results.
Net income in the quarter was $4.88 billion or $1.13 per share, on a GAAP basis compared with $5.02 billion or $1.17 per share in the prior-year quarter due to top-line contraction. Excluding non-recurring items, quarterly adjusted earnings per share were $1.22 compared with $1.32 in the prior-year quarter, beating the Zacks Consensus Estimate by 5 cents.
Quarterly total operating revenues decreased to $33.34 billion from $34.24 billion in the prior year owing to lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades. The top line missed the consensus estimate of $33.39 billion.
The telecom giant has reiterated its guidance for 2023 and expects wireless service revenue growth of 2.5-4.5%. The company expects adjusted earnings in the range of $4.55 to $4.85 per share.
AT&T
On Oct 19, AT&T (T) reported relatively healthy third-quarter 2023 results. The company recorded strong subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans.
On a GAAP basis, AT&T reported net income of $3.44 billion or 48 cents per share compared with $5.98 billion or 80 cents per share in the year-ago quarter, mainly because of higher operating expenses despite top-line growth.Excluding non-recurring items, adjusted earnings were 64 cents per share compared with 68 cents in the year-ago quarter and ahead of the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues increased 1% year over year to $30.35 billion, largely due to higher Mobility, Mexico and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services. The top line beat the consensus mark of $30,202 million.
While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with an expanded reach of software-based entertainment platforms.
ETFs in Focus
Below, we highlight a few ETFs with considerable exposure to the mentioned companies.
iShares U.S. Telecommunications ETF seeks to track the performance of the Russell 1000 Telecommunications RIC 22.5/45 Capped Index with a basket of 20 securities. The fund has gathered an asset base of $246.8 million and charges an annual fee of 0.40%.
iShares U.S. Telecommunications ETF has an exposure of 11.92% and 5.04% in VZ and T, respectively.
Invesco S&P 500 Equal Weight Communication Services ETF seeks to track the performance of the S&P 500 Equal Weight Communication Services Plus Index with a basket of 25 securities. The fund has amassed an asset base of $50.5 million and charges an annual fee of 0.40%.
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 5.19% and 4.69% in T and VZ, respectively.
Communication Services Select Sector SPDR Fund (XLC - Free Report)
Communication Services Select Sector SPDR Fund seeks to track the performance of the Communication Services Select Sector Index with a basket of 22 securities. The fund has amassed an asset base of $14.16 billion and charges an annual fee of 0.10%.
Communication Services Select Sector SPDR Fund has an exposure of 5.06% and 4.47% in T and VZ, respectively.
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF seeks to track the performance of the MSCI USA IMI Communication Services 25/50 Index with a basket of 107 securities. The fund has amassed an asset base of $793.3 million and charges an annual fee of 0.08%.
Fidelity MSCI Communication Services Index ETF has an exposure of 4.36% and 3.73% in VZ and T, respectively.
Vanguard Communication Services ETF seeks to track the performance of the MSCI US Investable Market Communication Services 25/50 Index with a basket of 117 securities. The fund has amassed an asset base of $3.39 billion and charges an annual fee of 0.10%.
Vanguard Communication Services ETF has an exposure of 4.24% and 3.44% in VZ and T, respectively.
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Assessing Telecomm ETFs Amid Q3 Earnings
Following a market rally fueled by an AI frenzy, the broader market has encountered a downturn over the past month. The telecom sector has been underperforming, with the S&P Telecom Select Industry Index losing 6.9% over the past month. This is compared to the S&P 500 Index falling by 0.94% over the past month. Whereas AT&T reported relatively healthy third-quarter 2023 results, Verizon Communications Inc. reported mixed third-quarter 2023 results, failing to beat revenue estimates.
Below, we highlight Q3 earnings results from these companies.
Earnings in Detail
Verizon Communications
On Oct 24, Verizon Communications (VZ - Free Report) reported mixed third-quarter 2023 results with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. The company is experiencing a notable surge in 5G adoption and fixed wireless broadband momentum, with strong demand for FIOS and fixed wireless products driving strong broadband results.
Net income in the quarter was $4.88 billion or $1.13 per share, on a GAAP basis compared with $5.02 billion or $1.17 per share in the prior-year quarter due to top-line contraction. Excluding non-recurring items, quarterly adjusted earnings per share were $1.22 compared with $1.32 in the prior-year quarter, beating the Zacks Consensus Estimate by 5 cents.
Quarterly total operating revenues decreased to $33.34 billion from $34.24 billion in the prior year owing to lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades. The top line missed the consensus estimate of $33.39 billion.
The telecom giant has reiterated its guidance for 2023 and expects wireless service revenue growth of 2.5-4.5%. The company expects adjusted earnings in the range of $4.55 to $4.85 per share.
AT&T
On Oct 19, AT&T (T) reported relatively healthy third-quarter 2023 results. The company recorded strong subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans.
On a GAAP basis, AT&T reported net income of $3.44 billion or 48 cents per share compared with $5.98 billion or 80 cents per share in the year-ago quarter, mainly because of higher operating expenses despite top-line growth.Excluding non-recurring items, adjusted earnings were 64 cents per share compared with 68 cents in the year-ago quarter and ahead of the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues increased 1% year over year to $30.35 billion, largely due to higher Mobility, Mexico and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services. The top line beat the consensus mark of $30,202 million.
While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with an expanded reach of software-based entertainment platforms.
ETFs in Focus
Below, we highlight a few ETFs with considerable exposure to the mentioned companies.
iShares U.S. Telecommunications ETF (IYZ - Free Report)
iShares U.S. Telecommunications ETF seeks to track the performance of the Russell 1000 Telecommunications RIC 22.5/45 Capped Index with a basket of 20 securities. The fund has gathered an asset base of $246.8 million and charges an annual fee of 0.40%.
iShares U.S. Telecommunications ETF has an exposure of 11.92% and 5.04% in VZ and T, respectively.
Invesco S&P 500 Equal Weight Communication Services ETF (RSPC - Free Report)
Invesco S&P 500 Equal Weight Communication Services ETF seeks to track the performance of the S&P 500 Equal Weight Communication Services Plus Index with a basket of 25 securities. The fund has amassed an asset base of $50.5 million and charges an annual fee of 0.40%.
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 5.19% and 4.69% in T and VZ, respectively.
Communication Services Select Sector SPDR Fund (XLC - Free Report)
Communication Services Select Sector SPDR Fund seeks to track the performance of the Communication Services Select Sector Index with a basket of 22 securities. The fund has amassed an asset base of $14.16 billion and charges an annual fee of 0.10%.
Communication Services Select Sector SPDR Fund has an exposure of 5.06% and 4.47% in T and VZ, respectively.
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF seeks to track the performance of the MSCI USA IMI Communication Services 25/50 Index with a basket of 107 securities. The fund has amassed an asset base of $793.3 million and charges an annual fee of 0.08%.
Fidelity MSCI Communication Services Index ETF has an exposure of 4.36% and 3.73% in VZ and T, respectively.
Vanguard Communication Services ETF (VOX - Free Report)
Vanguard Communication Services ETF seeks to track the performance of the MSCI US Investable Market Communication Services 25/50 Index with a basket of 117 securities. The fund has amassed an asset base of $3.39 billion and charges an annual fee of 0.10%.
Vanguard Communication Services ETF has an exposure of 4.24% and 3.44% in VZ and T, respectively.