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Will AT&T (T) Disappoint Investors this Earnings Season?

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AT&T Inc. (T - Free Report) , a domestic telecom giant, is scheduled to report second-quarter 2017 financial numbers on Jul 25, after market close.

In the last four quarters, AT&T’s bottom line was on par with the Zacks Consensus Estimate, with an average surprise of 0.00%.

Over the past three months, shares of AT&T have declined 7.6% compared with the industry’s decline of 7.2%.

Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

AT&T operates in a highly competitive and saturated wireless market where spectrum crunch is a big issue. The company’s wireline division has been struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by the cable companies.

Further, stringent regulatory measures and union issues are major headwinds. The company has also been facing intense competition, which has compelled it to lower the price of its services due to decreased demand. AT&T has been actively trying to lure customers with attractive discounts as a counteractive measure against the competition posed by the other carriers.

Toward this end, AT&T has been offering multiple offers with over the top (OTT) online streaming service, ‘DirecTV Now’, which has failed to achieve its target. Post DIRECTV acquisition, revenues from the Entertainment group segment grossed $12,623 million, inching down 0.3% year over year in the first quarter of 2017. As of Mar 31, total video connections in this segment were 25.032 million, down 1.2%. We expect the company to recover from the loss in the to-be reported quarter.  It will be interesting to watch whether AT&T’s upcoming results can tide over these challenges.

On the flip side, we appreciate AT&T’s efforts to reward its shareholders with a quarterly dividend of $0.49 a share on the company’s common shares, payable on Aug 1, to stockholders of record at the closure of business on Jul 10.

AT&T’s 5G trials in 2017, plans to launch 3GPP Mobile 5G Services in late 2018 and deploy 28GHz and 39GHz spectrum bands using Qualcomm Inc.’s (QCOM) prototype devices and Ericsson’s (ERIC - Free Report) base station solutions complements its 5G wireless network expansion strategy. We expect these announcements to enable AT&T witness further subscriber addition in the first quarter.

Unlimited data plans from AT&T have already made a place in the wireless industry. The company’s continuous efforts to strengthen its foothold in the Internet of Things (IoT) space by inking different deals look good.

AT&T is gearing up to boost its cloud suite. The company recently inked different deals to increase the growing base of cloud partners for its cloud networking product, AT&T NetBond. The cloud platform partners include Oracle, Inc.’s (AMZN - Free Report) Amazon Web Services (AWS), International Business Machines Corporation (IBM), Equinix, Inc. (EQIX) and Microsoft Corporation’s (MSFT) Microsoft Azure.

Earnings Whispers

Our proven model does not conclusively show that AT&T is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: AT&T has an Earnings ESP of -1.35%. This is because the Most Accurate estimate stands at 73 cents while the Zacks Consensus Estimate is pegged at 74 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AT&T has a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

AT&T Inc. Price and EPS Surprise


AT&T Inc. Price and EPS Surprise | AT&T Inc. Quote

Key Pick

MSCI Inc. (MSCI - Free Report) , from the Zacks categorized broader Computer and Technology sector, has the right combination of elements to post an earnings beat in the second quarter of 2017 on Aug 3. MSCI has an Earnings ESP of +1.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Its earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 6.32%.

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