Back to top

Image: Bigstock

4 Telecom Stocks Poised to Beat Q4 Earnings

Read MoreHide Full Article

The U.S. telecommunications industry is a rapidly changing space. This has traditionally been the norm and there has been no change to this trend with Donald Trump at helm of the U.S. administration. In fact, president Trump already has had quite an impact on telecom policy parameters. Under Trump’s presidency, 2017 may usher in a less restrictive telecom regulator – the FCC (Federal Communications Commission) that will likely to boost telecom operators’ and other Internet service providers’ (ISP) revenues.

Recently, President Trump has elected existing Republican commissioner Ajit Pai as the new Chairman of the FCC. Appointment of Pai as the head of the regulatory body appears to put net neutrality back on the front burner as he is a staunch net neutrality opponent. Notably, in Nov 2016, the FCC abandoned its plans to reform Business Data Services (BDS) market and decided not to proceed with its set top box reform proposals, the two game changing decisions taken by the previous Obama regime.

Per the latest Earnings Trends report, 219 S&P 500 members have reported their quarterly numbers as of Feb 01, 2017. Total earnings for these members are up 5.4% on 3.5% higher revenues, with 64.8% beating EPS estimates and 53.4% coming ahead of top-line expectations. Clearly, the overall earnings data so far is indicating toward a booming economy with growth on track to reach its highest level in two years.

Factors at Play

Telecommunications is a necessary utility. The need for telecom in both rural and urban areas as well as its role in the infrastructural development of an economy is of vital importance.

5G Wireless Technology

Several industry researchers hold that fifth-generation (5G) network will provide a download speed of 1 Gbps (gigabit per second), which is 200 times the throughput of the currently available standard 4G LTE network. Latency period of data delivery will be in a millisecond. Further, 5G technology is designed to be more power efficient than any other standard wireless network available at the moment. Naturally, 5G-enabled mobile devices are likely to last much longer than their 3G or 4G counterparts.

In July 2016, in a landmark voting, the FCC unanimously decided to make available high-frequency radio spectrums (above 24 GHz) for the use of the upcoming 5G wireless network. With this, the U.S. becomes the first country in the world to identify and open up a significant amount of spectrum suitable for the ultra-fast 5G mobile standard. At present, all four major national wireless operators, namely, Verizon Communications Inc. (VZ), AT&T Inc. (T), Sprint Corp. (S) and T-Mobile US Inc. (TMUS) are going through trial runs for 5G wireless standards. Notably, Verizon has announced that an initial 5G network will be deployed in 2017. All four stocks mentioned above currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Internet of Things (IoT): The Next Growth Driver

IoT, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is quickly gaining significant market traction and bringing about fundamental changes in business models. Next-generation superfast wireless networks (4G LTE, LTE-A, upcoming 5G) will provide the primary impetus to the telecom industry. In this context, IoT holds potential to be the numero uno factor in driving future growth in the space. IoT is a network of physical objects embedded with electronics, software, sensors and connectivity that facilitates it to achieve greater value and service by exchanging data with other connected devices. Superfast 5G mobile networks will be of utmost necessity in managing the exponential growth of IoT.

Online Digital Advertisement: Strong Potential

Advertisement on the mobile video platform is gradually leaning away from simple selling of banner ads on the mobile web to automated or programmatic ad selling. Pay- TV operators are steadily adopting the data-driven advertising technique that is already popular in the web-based advertisement arena. To derive maximum synergy from the combined video content and video distribution platform, these companies are extensively penetrating into the advertising technology market. Inclusions of dynamic ad-insertion, targeted audience advertising and data-driven TV advertisements are all steps toward the same objective.

How to Make the Right Pick?

Given the large number of industry participants, selecting stocks that have the potential to beat estimates appears to be a daunting task. Nonetheless, our proprietary methodology makes it fairly simple.

One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

Earnings ESP is our proprietary methodology to determine which stocks have the best chance to surprise in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. An earnings beat boosts investor confidence in the stock, which is reflected in its rapid price appreciation. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our choices

With the aid of the above methodology, we have zeroed in on four telecom stocks that are likely to beat the Zacks Consensus Estimate in fourth quarter.

CenturyLink Inc. (CTL) has an Earnings ESP of +1.79% and carries a Zacks Rank #3. The company is scheduled to report results on Feb, 08. The company has delivered positive earnings surprises in each of the last four quarters, with an average beat of around 9.02%.

Zayo Group Holdings Inc. (ZAYO) has an Earnings ESP of a substantial +42.86% and carries a Zacks Rank #3. It is slated to report second quarter of fiscal 2017 (ended Dec 31, 2016) results on Feb. 09.

Charter Communications Inc. (CHTR - Free Report) flaunts an Earnings ESP of 10.38% and carries a Zacks Rank #3. The company is scheduled to report results on Feb. 16.

The Earnings ESP for ARRIS International PLC (ARRS) is +1.56% and the stock carries a Zacks Rank #3. The company will release its Q4 earnings results on Feb. 22.

Zacks' Best Investment Ideas for Long-Term Profit

Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Charter Communications, Inc. (CHTR) - free report >>