Telecom service provider stocks have not performed well in the second quarter of 2017. The industry has declined 3.09%, underperforming the S&P 500’s rally of 16.53%. Several near-term headwinds continue to persist. The chief ones include growing price competition for wireless services, which are likely to reduce carriers' revenue growth in 2017. Leading cable MSOs (multi service operators) have decided to enter the wireless field in 2017. This is likely to intensify competition in an already saturated market. Furthermore, capital spending by the U.S. telecom carriers may be muted in 2017.
On the positive side, the new U.S. telecom regulatory body – Federal Communications Commission (FCC) – has given enough indications that it will be less stringent compared with the Obama administration. It is also likely to roll back several stringent regulations of the previous regime. The lesser restrictive nature of the FCC will aid mergers and acquisitions, which are likely to spur growth in 2017.
Performance So Far
Per the latest Zacks Earnings Preview report, 128 S&P 500 members (accounting for 36.1% of the index’s total membership) have reported second-quarter earnings results as of Jul 25. Total earnings for these companies are up 7% from the same period last year on 4.2% higher revenues, with 77.3% beating EPS estimates and 70.3% beating revenue estimates.
The above mentioned figures indicate that the growth pace is likely to be lower-than what we had seen in the first quarter, but will mostly be in-line with the four-quarter average. It also presents a notable improvement over the last 12-quarter average. Total second-quarter earnings are expected to be up 8.6% from the same period last year on 4.7% higher revenues. This would follow 13.3% earnings growth in the first-quarter 2017 on 7.0% rise in revenues, the highest growth pace in almost two years.
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%. Earnings beat boosts investor’s 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.
With the aid of the above methodology, we have zeroed in on three telecom stocks that are likely to beat the Zacks Consensus Estimate this earnings season.
SBA Communications Corp. (SBAC - Free Report) has an Earnings ESP of +10.00% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company is scheduled to report results on Jul, 31. Last quarter, the company posted a whopping positive earnings surprise of 40.91% and a long-term earnings growth rate of 10.6%.
Cypress Semiconductor Corp. (CY - Free Report) has an Earnings ESP of +11.11% and sports a Zacks Rank #1. The company is scheduled to report results on Jul, 27. It has an average positive earnings surprise of a massive 83.30% in the last four quarters and a long-term earnings growth rate of 10%.
Comcast Corp. (CMCSA - Free Report) has an Earnings ESP of +2.08% and carries a Zacks Rank #3. The company is scheduled to report results on Jul, 27. It has an average positive earnings surprise of 5.11% in the last four quarters and a long-term earnings growth rate of 9.1%.
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