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Analyst Blog

Last week was all about earnings in the telecom sector. Several sector participants declared their third-quarter 2016 financial numbers, the overall results being a mixed bag.

United States Cellular Corp. (USM - Free Report) , TELUS Corp. (TU - Free Report) , Shaw Communications Inc. (SJR - Free Report) , Liberty Global plc. (LBTYA - Free Report) and Cable ONE Inc. (CABO - Free Report) reported mixed financial results in the third quarter of 2016. The top line of all these companies outpaced the Zacks Consensus Estimate while the bottom line failed to beat the same.

Meanwhile, Charter Communications Inc. (CHTR - Free Report) reported strong financial results in the third quarter of 2016, wherein both the top and the bottom line surpassed the Zacks Consensus Estimate. As of Sep 30, 2016, Charter Communications had 16.887 million video, 21.017 million high-speed Internet and 10.288 million voice customers under the Residential segment. The company also had 388,000 video, 1,185,000 high-speed Internet and 751,000 voice subscribers under the Commercial segment.

On the other hand, DISH Network Corp. (DISH - Free Report) , Telephone and Data Systems Inc. (TDS - Free Report) and Windstream Holdings Inc. (WIN - Free Report) reported weak financial results in the third quarter of 2016, wherein both the top and the bottom line lagged the Zacks Consensus Estimate. DISH Network and Windstream currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

On the merger and acquisition front, Windstream announced collaboration with rival EarthLink Holdings Corp. (ELNK - Free Report) for a total value of $1.1 billion. Windstream will issue about 93 million shares for the deal which is valued at $673 million, while the total value including debt will tally to $1.1 billion. The transaction is anticipated to close in the first half of 2017. Shareholders of Windstream will control 51% of the combined company while remaining portion will be owned by the EarthLink shareholders.

Read the last Telecom Stock Roundup for Nov 03, 2016.

Recap of the Week’s Most Important Stories

1.    GAAP net income of Telephone and Data Systems in the third quarter of 2016 was $13 million compared with $51 million in the year-ago quarter. Quarterly adjusted earnings per share of 11 cents lagged the Zacks Consensus Estimate of 13 cents. Revenues were down 5.3% year over year to $1,301 million in the reported quarter, below the Zacks Consensus Estimate of $1,307 million. (read more: Telephone & Data Systems Misses on Earnings in Q3.)

2.    In third-quarter 2016, United States Cellular’s GAAP net income came in at $17 million compared with a net income of $64 million in the year-ago quarter. Quarterly earnings per share of 20 cents lagged the Zacks Consensus Estimate of 23 cents. Quarterly revenues of $1,010 million were down 5.5% year over year but managed to beat the Zacks Consensus Estimate of $985 million. (read more:  United States Cellular Q3 Earnings Lag, View Intact.)

3.    Charter Communications’ GAAP net income in the reported quarter was $189 million or 69 cents per share compared with net income of $2 million or 1 cent in the year-ago quarter. Quarterly earnings per share of 69 cents were well above the Zacks Consensus Estimate of 62 cents per share. Third-quarter 2016 total revenue of $10,037 million increased 7.4% year over year, beating the Zacks Consensus Estimate of $10,020 million. (read more:  Charter Communications Beats on Earnings in Q3.)

4.    DISH Network’s third-quarter net income came in at $307.42 million or 64 cents per share compared with $196.48 million or 42 cents in the year-ago quarter. Earnings per share of 64 cents lagged the Zacks Consensus Estimate of 69 cents. Total revenue in the reported quarter was approximately $3,746.1 million, up 0.35% year over year but below the Zacks Consensus Estimate of $3,755 million. (read more: DISH Network Misses on Earnings and Revenues in Q3.)

5.    On a GAAP basis, Windstream reported a net loss of $66.2 million or a loss of 72 cents per share compared with a net loss of $7.2 million or a loss of 8 cents in the year-ago quarter. On an adjusted basis, the company’s loss per share of 61 cents was considerably wider than the Zacks Consensus Estimate of a loss of 46 cents. Total revenue declined 10% year over year to $1,344.9 million in the third quarter, missing the Zacks Consensus Estimate of $1,355 million. (read more: Windstream Reports Wider-than-Expected Loss in Q3.)

Price Performance

The following table shows the price movement of the major telecom players over the past week and the last six months.

Company

Last Week

Last 6 Months

VZ

2.31%

-7.14%

T

2.80%

-4.76%

S

20.57%

103.14%

TMUS

7.08%

29.89%

VOD

-3.00%

-2.14%

CHL

-0.45%

-0.39%

AMX

-5.36%

-6.95%

CMCSA

3.07%

1.29%

DISH

5.63%

21.86%

Over the last five trading sessions, share price movement of major telecom stocks was predominantly positive. Sprint (20.57%) and DISH (5.63%) gained significant value while America Movil (5.36%) lost the most over the same time frame. Over the last six months, the price performance of most telecom stocks witnessed a mixed trend. Among the stocks that gained considerably were Sprint (103.14%), T-Mobile US (29.89%) and DISH (21.86%).

What’s Next in the Telecom Sector?

We do not foresee any significant changes in the telecom industry or overall global economic factors that can affect the industry in the coming week. Consequently, we expect stocks to trade in line with the broader market movement.

 

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