The fourth-quarter earnings season has taken center stage, with 251 S&P 500 members having reported their numbers already. The season has turned out to be favorable so far, especially on the revenue front. A sturdy revenue momentum was witnessed in the season, above-average proportion of positive surprises along with favorable revisions trend for the present and the upcoming quarters.
Per the latest Earnings Preview, total earnings for the companies are up 16% year over year on 10.5% higher revenues. Of the total, 80.5% beat earnings and 78.1% surpassed revenue estimates. With 92 S&P 500 members lined up to release their quarterly results this week, we are bullish on the equity market, which is gradually demonstrating a sequential improvement.
Per the Zacks Industry classification, the telecommunications industry is grouped under the Computer and Technology sector (one of the 16 Zacks sectors). For fourth-quarter 2017, the expected earnings growth rate for the sector is 21.9% on 10.5% revenue improvement.
Telcos Bounce Back
Stocks in the telecommunication space has revived after a dismal run in 2017 due to headwinds like intense competition in the wireless market and competitive threat from online streaming service providers.
The new tax law (Tax Cuts and Jobs Act) is a huge positive for the companies in this space. Notably, the $1.5-trillion tax overhaul package signed into law by President Trump on Dec 22, 2017, reduces corporate taxes from 35% to 21%. This has brought the corporate tax rate at its historic low in 78 years. Large telecom operators book much of their revenues in the homeland. Therefore, a significant reduction in corporate tax rate faced by telecom carriers will be immediately accretive to cash flow.
Buoyed by the new law, various sector participants like AT&T (T - Free Report) and Comcast (CMCSA - Free Report) have declared bonuses for their employees.
Outperformances in Q4
Key players like AT&T and Qualcomm (QCOM - Free Report) have reported impressive financial results in the quarter on the back of optimism surrounding the telecom industry. While AT&T reported fourth-quarter 2017 financial results, Qualcomm released first-quarter fiscal 2018 numbers.
Sprint posted better-than-expected third-quarter fiscal 2017 financial results. After adjusting a one-time tax gain, net loss of 2 cents per share was narrower than the Zacks Consensus Estimate of a loss of 4 cents.
Verizon Communications (VZ - Free Report) reported mixed fourth-quarter 2017 financial numbers. The top line beat the Zacks Consensus Estimate and the bottom line lagged the same.
Notably, AT&T, Sprint and Verizon have reported massive postpaid wireless subscriber additions in the quarter.
What Lies Ahead?
Investors interested in the telecommunication space keenly await reports from other participants like T-Mobile US (TMUS - Free Report) , Ubiquiti Networks, Inc.(UBNT - Free Report) and ViaSat Inc. (VSAT - Free Report) .
According to our quantitative model, a stock needs to have the right combination of the two key ingredients, a positive Earnings ESP and a Zacks Rank #3 (Hold) or better, to deliver an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
We also 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.
Let’s take a look at the aforementioned three telecom stocks slated to release their respective quarterly reports on Feb 8.
T-Mobile US is scheduled to release fourth-quarter 2017 results on Feb 08, before the market opens.
The Zacks Consensus Estimate for revenues is pegged at $10.89 billion, reflects year over year improvement of 6.98%. The Zacks Consensus Estimate for earnings is at 37 cents per share, showing a year-over-year decline of 17.78%.
The company is expected to deliver solid performance in the quarter on the back of solid subscriber statistics and share repurchase programs.Additionally, the company’s rating was upgraded to Ba2 by Moody's, with its rating outlook being confirmed stable. Per the Zacks Consensus Estimates, T-Mobile US is likely to see an improvement in revenues. (Read More: T-Mobile US to Report Q4 Earnings: What's in Store?)
Notably, the company’s innovative network expansion methodologies and improvement plans, stellar network performance, deployment of LTE-U technology and offering of attractive unlimited data are key factors behind the mounting performance. This is supported by improving scale, healthy free cash flow generation, strong liquidity and valuable spectrum assets that also provide credit support.
Additionally, the wireless national carrier displays an impressive earnings surprise history. The company’s bottom line beat the Zacks Consensus Estimate in all of the previous four quarters, with an average positive surprise of 53.97%.
However, T-Mobile US has an Earnings ESP of -6.73%. This is because the Most Accurate estimate is at 34 cents while the Zacks Consensus Estimate is pegged at 37 cents.
T-Mobile US has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.
You can see the complete list of today's Zacks #1 Rank stocks here.
Ubiquiti Networks is scheduled to report second-quarter fiscal 2018 results on Feb 8, before the market opens.
Headquartered in San Jose, CA, the company is engaged in the business of designing, manufacturing and selling broadband wireless solutions worldwide. Its products and solutions include radios, antennas and management tools as well as other applications in the unlicensed radio frequency spectrum.
The company has an impressive history of earnings surprise. The company’s bottom line beat the Zacks Consensus Estimate in three of the previous four quarters, with an average positive surprise of 5.48%.
However, the company has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 81 cents. Additionally, Ubiquiti Networks is a Zacks Rank #4 (Sell) stock.
An unfavorable Zacks Rank #4 coupled with 0.00% ESP dims the possibility of an earnings beat in the to-be-reported quarter.
ViaSat is scheduled to report third-quarter fiscal 2018 results on Feb 8, after the market closes. ViaSat is a communications company based in Carlsbad, CA. It operates as a global broadband services and technology company.
The Zacks Consensus Estimate for third-quarter revenues is pegged at $388.56 billion, reflects year-over-year improvement of 2.08%. The Zacks Consensus Estimate for earnings is at a loss of 4 cents per share, reflecting a decline of 113.79% year over year.
ViaSat displays a positive earnings surprise history. Earnings beat the Zacks Consensus Estimate in three of the previous four quarters, with an average positive surprise of 52.60%.
ViaSat has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP (the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 6 cents) makes surprise prediction difficult.
Per our proprietary model, T-Mobile US, Ubiquiti Networks and ViaSat are unlikely to beat estimates in the to-be-reported quarter.
However, we expect higher activities in the telecom industry over the next week as big names like CenturyLink and Cincinnati Bell are set to release fourth-quarter 2017 numbers. The market will closely evaluate the results to assess industry dynamics and prospects.
Irrespective of an earnings beat or miss, investors should focus on the companies’ fundamentals to take a decision. Therefore, don’t forget to check our full write up on earnings releases of these stocks later.
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