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4 Telecom Operators Poised to Beat Estimates in Q3 Earnings

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With the world comfortably poised on a digital edge, the need to remain connected has grown manifold. It is here that telecommunication takes the center stage. The necessity for strong telecom facilities in both rural and urban areas and its role in infrastructure growth of both developed and developing markets continue to rise. Naturally, the telecommunications industry has been identified as a major impetus for global economic growth.

Momentum to Continue

The new U.S. telecom regulatory body, Federal Communications Commission (FCC), has given enough indications of its leniency compared with the Obama administration. It is most likely to roll back several stringent regulations of the previous regime. The FCC’s stance of being less restrictive will aid mergers and acquisitions, which are likely to spur growth in the rest of 2017.

Additionally, a major characteristic of the telecommunications industry is that it is immune to international geo-political disturbances even when these lead to economic fluctuations. A growing economy speeds up  demand for real-time voice, data and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. The rising demand for technologically superior products has been a silver lining for the telecommunication industry in an otherwise tough environment.

2 Major Future Drivers of Telecom Industry

(1) Upcoming 5G Wireless Networks: According to a study commissioned by Qualcomm, fifth-generation (5G) wireless technology could result in real global economic growth by $3 trillion cumulatively from 2020 to 2035. Several industry researchers hold that 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.

(2) Internet of Things (IoT): Internet of Things, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is fast gaining market traction and bringing about fundamental changes in business models. Next-generation superfast wireless networks will provide the primary impetus to the telecom industry. In this context, IoT holds the potential of being the numero uno factor in driving growth in the space. Upcoming 5G mobile networks will be of utmost importance in the management of exponential growth in IoT.

How to Make a Selection?

With the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could appear difficult, but our proprietary methodology makes it fairly simple for you. One way to narrow down the list of choices during the earnings season is to look 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 for identifying stocks that have high chances of surprising with 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%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Top Picks

For investors seeking to apply this strategy to their portfolio, we have chosen four telecom stocks that may stand out this earnings season:

America Movil SAB (AMX - Free Report) is the leading provider of wireless and wireline communications services in Mexico. Its network covers approximately 31.4% of the geographical area of the nation, including all major cities, and approximately 89.6% of Mexico’s population. The company has an Earnings ESP of +10.77% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

For the third quarter of 2017, the Zacks Consensus Estimate for earnings per share (EPS) is pegged at 33 cents, reflecting year-over-year growth of a whopping 983.3. Meanwhile, the consensus estimate for revenues is $13.97 billion, up 4.9% year over year.

Windstream Holdings Inc. (WIN - Free Report) offers advanced network communications, including cloud computing and managed services, to businesses. The company also offers broadband, phone and digital TV services to consumers primarily in rural areas. The company carries a Zacks Rank #2 with an Earnings ESP of +25.30%.  

For the third quarter of 2017, the Zacks Consensus Estimate for EPS is pegged at a loss of 42 cents, indicating year-over-year improvement of 32.0%.  The Zacks Consensus Estimate for revenues is $1.51 billion, down 12.2% year over year.

BCE Inc. (BCE - Free Report) is a leading telecom operator in Canada. It provides residence and business customers with wireline and wireless communications products and applications, satellite communications and direct-to-home television services. The company carries a Zacks Rank #2 and has an Earnings ESP of +0.49%. 

For the third quarter of 2017, the Zacks Consensus Estimate for EPS is pegged at 68 cents, reflecting year-over-year decline of 3.3%. Meanwhile, the consensus estimate for revenues is $4.56 billion, up 9.9% year over year.

Sprint Corp. (S - Free Report) is the fourth-largest national telecom operator in the United States. It operates in two segments: Wireless and Wireline. The company deploys wireless networks offering mobile data services, instant national and international push-to-talk capabilities and a global Tier 1 Internet backbone. The company has a Zacks Rank #2 and an Earnings ESP of +49.20%. 

For the second quarter of fiscal 2017 (ended September 2017), the Zacks Consensus Estimate for EPS is pegged at a loss of 2 cents, reflecting a substantial year-over-year improvement of 43.8%. However, the consensus estimate for revenues is $8.11 billion, down 1.7% year over year.

Bottom Line

Challenges in the form of competitive product introduction and cut-throat pricing pressure will remain in the telecom sector. However, a number of companies in the space have fared well. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Earnings ESP, could lead investors to gain this earnings season.

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