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The telecom sector has been trending downward compared to the broader market. With the S&P Telecom Select Industry Index falling 8.78% over the past year, the descending trajectory in the industry is evident when compared to the S&P 500, which has added 21.20% over the past year.
However, optimistic AI forecasts amid the broader market rally may fare well for the telecom sector. The Fed’s dovish stance and estimates of interest rate cuts in 2024 also bode well. Both AT&T and Verizon Communications Inc. reported a healthy fourth quarter.
Below, we highlight fourth-quarter earnings results from these companies.
Earnings in Detail
Verizon Communications
On Jan 23,Verizon Communications (VZ - Free Report) reported healthy fourth-quarter numbers, driven by significant 5G adoption and wireless traction. The robust broadband performance was fueled by solid demand for fixed wireless products. Verizon witnessed solid momentum in the wireless business, with 449,000 total postpaid phone net additions in the quarter.
Net loss in the quarter amounted to $2.57 billion or a loss of 64 cents per share. In the prior-year quarter, the company had reported net income of $6.69 billion or $1.56 per share. This year-over-year decline can be mostly blamed on higher operating expenses led by a goodwill impairment charge. Excluding non-recurring items, quarterly adjusted earnings came in at $1.08 per share compared with $1.19 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny.
Total operating revenues of $35.13 billion decreased from $35.25 billion in the prior year but managed to beat the consensus estimate of $34.82 billion. The year-over-year fall was mainly on account of lower wireless equipment revenues generated from a challenging macroeconomic environment and fewer postpaid phone upgrades.
The company expects wireless service revenues to grow by 2%-3.5% for 2024.
AT&T
On Jan 24, AT&T (T - Free Report) reported relatively healthy fourth-quarter 2023 results as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services. 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, the company reported a net income of $2.14 billion or 30 cents per share, which marked a significant year-over-year improvement, primarily due to high asset impairment charges in the year-earlier quarter. Excluding non-recurring items, adjusted earnings from continuing operations were 54 cents per share compared with 61 cents in the year-ago quarter and below the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues increased 2.2% year over year to $32.02 billion, beating the consensus mark of $31.46 billion. This rise was largely due to higher Mobility, Mexico and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services.
While optimizing operations, AT&T aims 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 19 securities. The fund has amassed an asset base of $277.9 million and charges an annual fee of 0.40%.
iShares U.S. Telecommunications ETF has an exposure of has an exposure of 14.66% and 4.34% in VZ and T, respectively. The fund has a Zacks ETF Rank #3 (Hold) and a Medium risk outlook. IYZ has added 5.71% over the past month and 7.45% over the past three months.
Invesco S&P 500 Equal Weight Communication Services ETF seeks to track the performance of S&P 500 Equal Weight Communication Services Plus Index, with a basket of 26 securities. The fund has amassed an asset base of $64.4 million and charges an annual fee of 0.40%.
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 4.84% and 4.45% in VZ and T, respectively. The fund has a Zacks ETF Rank #2 (Buy). RSPC has added about 4.60% over the past month and 10.21% over the past three months.
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 108 securities. The fund has amassed an asset base of $918.1 million and charges an annual fee of 0.08%.
Fidelity MSCI Communication Services Index ETF has an exposure of 4.54% and 3.58% in VZ and T, respectively. The fund has a Zacks ETF Rank #3 (Hold) and a Medium risk outlook. FCOM has added 5.37% over the past month and 12.32% over the past three months.
Vanguard Communication Services ETF seeks to track the performance of MSCI US Investable Market Communication Services 25/50 Index, with a basket of 118 securities. The fund has gathered an asset base of $3.61 billion and charges an annual fee of 0.10%.
Vanguard Communication Services ETF has an exposure of 4.42% and 3.58% in VZ and T, respectively. The fund has a Zacks ETF Rank #3 (Hold) and a Medium risk outlook. VOX has added 5.42% over the past month and 12.23% over the past three months.
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Assessing Telecomm ETFs Amid Q4 Earnings
The telecom sector has been trending downward compared to the broader market. With the S&P Telecom Select Industry Index falling 8.78% over the past year, the descending trajectory in the industry is evident when compared to the S&P 500, which has added 21.20% over the past year.
However, optimistic AI forecasts amid the broader market rally may fare well for the telecom sector. The Fed’s dovish stance and estimates of interest rate cuts in 2024 also bode well. Both AT&T and Verizon Communications Inc. reported a healthy fourth quarter.
Below, we highlight fourth-quarter earnings results from these companies.
Earnings in Detail
Verizon Communications
On Jan 23,Verizon Communications (VZ - Free Report) reported healthy fourth-quarter numbers, driven by significant 5G adoption and wireless traction. The robust broadband performance was fueled by solid demand for fixed wireless products. Verizon witnessed solid momentum in the wireless business, with 449,000 total postpaid phone net additions in the quarter.
Net loss in the quarter amounted to $2.57 billion or a loss of 64 cents per share. In the prior-year quarter, the company had reported net income of $6.69 billion or $1.56 per share. This year-over-year decline can be mostly blamed on higher operating expenses led by a goodwill impairment charge. Excluding non-recurring items, quarterly adjusted earnings came in at $1.08 per share compared with $1.19 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny.
Total operating revenues of $35.13 billion decreased from $35.25 billion in the prior year but managed to beat the consensus estimate of $34.82 billion. The year-over-year fall was mainly on account of lower wireless equipment revenues generated from a challenging macroeconomic environment and fewer postpaid phone upgrades.
The company expects wireless service revenues to grow by 2%-3.5% for 2024.
AT&T
On Jan 24, AT&T (T - Free Report) reported relatively healthy fourth-quarter 2023 results as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services. 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, the company reported a net income of $2.14 billion or 30 cents per share, which marked a significant year-over-year improvement, primarily due to high asset impairment charges in the year-earlier quarter. Excluding non-recurring items, adjusted earnings from continuing operations were 54 cents per share compared with 61 cents in the year-ago quarter and below the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues increased 2.2% year over year to $32.02 billion, beating the consensus mark of $31.46 billion. This rise was largely due to higher Mobility, Mexico and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services.
While optimizing operations, AT&T aims 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 19 securities. The fund has amassed an asset base of $277.9 million and charges an annual fee of 0.40%.
iShares U.S. Telecommunications ETF has an exposure of has an exposure of 14.66% and 4.34% in VZ and T, respectively. The fund has a Zacks ETF Rank #3 (Hold) and a Medium risk outlook. IYZ has added 5.71% over the past month and 7.45% over the past three months.
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 S&P 500 Equal Weight Communication Services Plus Index, with a basket of 26 securities. The fund has amassed an asset base of $64.4 million and charges an annual fee of 0.40%.
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 4.84% and 4.45% in VZ and T, respectively. The fund has a Zacks ETF Rank #2 (Buy). RSPC has added about 4.60% over the past month and 10.21% over the past three months.
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 108 securities. The fund has amassed an asset base of $918.1 million and charges an annual fee of 0.08%.
Fidelity MSCI Communication Services Index ETF has an exposure of 4.54% and 3.58% in VZ and T, respectively. The fund has a Zacks ETF Rank #3 (Hold) and a Medium risk outlook. FCOM has added 5.37% over the past month and 12.32% over the past three months.
Vanguard Communication Services ETF (VOX - Free Report)
Vanguard Communication Services ETF seeks to track the performance of MSCI US Investable Market Communication Services 25/50 Index, with a basket of 118 securities. The fund has gathered an asset base of $3.61 billion and charges an annual fee of 0.10%.
Vanguard Communication Services ETF has an exposure of 4.42% and 3.58% in VZ and T, respectively. The fund has a Zacks ETF Rank #3 (Hold) and a Medium risk outlook. VOX has added 5.42% over the past month and 12.23% over the past three months.