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The robust performance of the telecom sector is highlighted by the impressive gains of the S&P Telecom Select Industry Index, which has outperformed the broader S&P 500. The telecom sector index has added about 53.65% over the past year, as compared to the S&P 500’s gain of 36.78%.
The sector’s outlook remains optimistic, driven by optimistic AI forecasts and a dovish Fed. An interest rate cut in September 2024 and increasing market expectations of further interest rate cuts paint a rosy picture for the sector. Both AT&T and Verizon Communications Inc. reported mixed third-quarter results.
Below, we highlight third-quarter earnings results of these companies.
Earnings in Detail
Verizon Communications
On Oct 22, before market open, Verizon Communications (VZ - Free Report) reported mixed third-quarter results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. Shares of the company fell about 6%, before market open, on the day. However, the VZ stock gained 3.2% after the earnings release (as of Oct. 24) but has since fallen 3.4%.
VZ has a Value Score and Momentum Score of A each, along with Zacks Rank #3 (Hold). This indicates that investors should hold on to VZ shares with a strong value and momentum bias.
Net income in the quarter was $3.41 billion or $0.78 per share, on a GAAP basis, compared with $4.88 billion or $1.13 per share in the prior-year quarter.The year-over-year decrease was mainly due to a $1.7 billion severance charge related to a voluntary separation program and other workforce reduction efforts.
Excluding non-recurring items, quarterly adjusted earnings came in at $1.19 per share compared with $1.22 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny.
Total quarterly operating revenues remained flat at $33.33 billion, missing the Zacks Consensus Estimate of $33.53 billion. Total operating expenses increased 6% year over year to $27.4 billion, while operating income declined 20.7% to $5.93 billion.
The company reiterated its previous guidance, expecting wireless service revenues to grow 2-3.5% for 2024 and adjusted earnings to be in the range of $4.50 to $4.70 per share.
AT&T
On Oct. 23, before market open, AT&T (T - Free Report) reported mixed third-quarter 2024 results, as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services.
The market reacted positively to the quarterly results, with AT&T gaining about 4.5% on Oct. 23 but falling 2.9% (as of Oct. 29). However, shares of the company fell about 1.4% the next day. The company has a Value Score of A for Value along with a Zacks Rank #3 (Hold), making it a good option for investors seeking value.
On a GAAP basis, AT&T reported a loss of $266 million or $0.03 per share against net income of $3.4 billion or $0.48 per share in the year-ago quarter. The decline was primarily attributable to a $4.4 billion non-cash goodwill impairment charge during the quarter.
Excluding non-recurring items, adjusted earnings from continuing operations came in at $0.60 cents per share compared with $0.64 cents in the year-ago quarter, missing the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues decreased marginally by 0.5% year over year to $30.21 billion, falling short of the consensus mark of $30.55 billion. Adjusted operating income remained flat at $6.5 billion.AT&T witnessed solid subscriber momentum with 429,000 post-paid net additions.
The company anticipates wireless service revenues to improve by 3%, with adjusted earnings projected to be $2.15-$2.25 per share. AT&T is also aiming to reduce its debt burden by monetizing non-core assets.
ETFs in Focus
Below, we highlight a few ETFs with considerable exposure to the mentioned companies.
iShares U.S. Telecommunications ETF has an exposure of 13.47% in VZ and 12.29% in T. The fund charges an annual fee of 0.40% and has a dividend yield of 2.03%.
iShares U.S. Telecommunications ETF has gained 16.85% over the past three months and 21.48% over the past year. However, the fund has fallen by around 1.1% since the start of the week (as of Oct. 24).
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 4.6% in T and 4.27 and 4.27% in VZ. The fund charges an annual fee of 0.40% and has a dividend yield of 1.05%.
Invesco S&P 500 Equal Weight Communication Services ETF has gained 10.49% over the past three months and 24.17% over the past year. However, the fund has fallen by around 0.47% since the start of the week (as of Oct. 24).
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF has an exposure of 4.59% in VZ and 4.10% in T. The fund charges an annual fee of 0.08% and has a dividend yield of 0.87%.
Fidelity MSCI Communication Services Index ETF has gained 5.88% over the past three months and 40.11% over the past year. However, the fund has fallen by around 0.58% since the start of the week (as of Oct. 24).
Vanguard Communication Services ETF has an exposure of 4.61% in VZ and 4.05% in T. The fund charges an annual fee of 0.10% and has a dividend yield of 1%.
Vanguard Communication Services ETF has gained 5.67% over the past three months and 39.84% over the past year. However, the fund has fallen by around 0.69% since the start of the week (as of Oct. 24).
SPDR S&P Telecom ETF has an exposure of 4.10% in T and 3.86% in VZ. The fund charges an annual fee of 0.35% and has a dividend yield of 0.60%.
SPDR S&P Telecom ETF has gained 29.24% over the past three months and 42.45% over the past year. However, the fund has fallen by around 1.5% since the start of the week (as of Oct. 24).
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Assessing What Q3 Earnings Means for Telecom ETFs
The robust performance of the telecom sector is highlighted by the impressive gains of the S&P Telecom Select Industry Index, which has outperformed the broader S&P 500. The telecom sector index has added about 53.65% over the past year, as compared to the S&P 500’s gain of 36.78%.
The sector’s outlook remains optimistic, driven by optimistic AI forecasts and a dovish Fed. An interest rate cut in September 2024 and increasing market expectations of further interest rate cuts paint a rosy picture for the sector. Both AT&T and Verizon Communications Inc. reported mixed third-quarter results.
Below, we highlight third-quarter earnings results of these companies.
Earnings in Detail
Verizon Communications
On Oct 22, before market open, Verizon Communications (VZ - Free Report) reported mixed third-quarter results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. Shares of the company fell about 6%, before market open, on the day. However, the VZ stock gained 3.2% after the earnings release (as of Oct. 24) but has since fallen 3.4%.
VZ has a Value Score and Momentum Score of A each, along with Zacks Rank #3 (Hold). This indicates that investors should hold on to VZ shares with a strong value and momentum bias.
Net income in the quarter was $3.41 billion or $0.78 per share, on a GAAP basis, compared with $4.88 billion or $1.13 per share in the prior-year quarter.The year-over-year decrease was mainly due to a $1.7 billion severance charge related to a voluntary separation program and other workforce reduction efforts.
Excluding non-recurring items, quarterly adjusted earnings came in at $1.19 per share compared with $1.22 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny.
Total quarterly operating revenues remained flat at $33.33 billion, missing the Zacks Consensus Estimate of $33.53 billion. Total operating expenses increased 6% year over year to $27.4 billion, while operating income declined 20.7% to $5.93 billion.
The company reiterated its previous guidance, expecting wireless service revenues to grow 2-3.5% for 2024 and adjusted earnings to be in the range of $4.50 to $4.70 per share.
AT&T
On Oct. 23, before market open, AT&T (T - Free Report) reported mixed third-quarter 2024 results, as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services.
The market reacted positively to the quarterly results, with AT&T gaining about 4.5% on Oct. 23 but falling 2.9% (as of Oct. 29). However, shares of the company fell about 1.4% the next day. The company has a Value Score of A for Value along with a Zacks Rank #3 (Hold), making it a good option for investors seeking value.
On a GAAP basis, AT&T reported a loss of $266 million or $0.03 per share against net income of $3.4 billion or $0.48 per share in the year-ago quarter. The decline was primarily attributable to a $4.4 billion non-cash goodwill impairment charge during the quarter.
Excluding non-recurring items, adjusted earnings from continuing operations came in at $0.60 cents per share compared with $0.64 cents in the year-ago quarter, missing the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues decreased marginally by 0.5% year over year to $30.21 billion, falling short of the consensus mark of $30.55 billion. Adjusted operating income remained flat at $6.5 billion.AT&T witnessed solid subscriber momentum with 429,000 post-paid net additions.
The company anticipates wireless service revenues to improve by 3%, with adjusted earnings projected to be $2.15-$2.25 per share. AT&T is also aiming to reduce its debt burden by monetizing non-core assets.
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 has an exposure of 13.47% in VZ and 12.29% in T. The fund charges an annual fee of 0.40% and has a dividend yield of 2.03%.
iShares U.S. Telecommunications ETF has gained 16.85% over the past three months and 21.48% over the past year. However, the fund has fallen by around 1.1% since the start of the week (as of Oct. 24).
Invesco S&P 500 Equal Weight Communication Services ETF (RSPC - Free Report)
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 4.6% in T and 4.27 and 4.27% in VZ. The fund charges an annual fee of 0.40% and has a dividend yield of 1.05%.
Invesco S&P 500 Equal Weight Communication Services ETF has gained 10.49% over the past three months and 24.17% over the past year. However, the fund has fallen by around 0.47% since the start of the week (as of Oct. 24).
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF has an exposure of 4.59% in VZ and 4.10% in T. The fund charges an annual fee of 0.08% and has a dividend yield of 0.87%.
Fidelity MSCI Communication Services Index ETF has gained 5.88% over the past three months and 40.11% over the past year. However, the fund has fallen by around 0.58% since the start of the week (as of Oct. 24).
Vanguard Communication Services ETF (VOX - Free Report)
Vanguard Communication Services ETF has an exposure of 4.61% in VZ and 4.05% in T. The fund charges an annual fee of 0.10% and has a dividend yield of 1%.
Vanguard Communication Services ETF has gained 5.67% over the past three months and 39.84% over the past year. However, the fund has fallen by around 0.69% since the start of the week (as of Oct. 24).
SPDR S&P Telecom ETF (XTL - Free Report)
SPDR S&P Telecom ETF has an exposure of 4.10% in T and 3.86% in VZ. The fund charges an annual fee of 0.35% and has a dividend yield of 0.60%.
SPDR S&P Telecom ETF has gained 29.24% over the past three months and 42.45% over the past year. However, the fund has fallen by around 1.5% since the start of the week (as of Oct. 24).