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Telecom Stock Roundup: Heavyweights Report Mixed Earnings

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Over the last five trading days, telecom stocks took an initial beating before witnessing a sharp rise, as healthy earnings surprises seemed to propel the industry.

The industry initially received a jolt when antitrust authorities made it clear that a competitive environment was of utmost importance. The Department of Justice initiated a probe related to the alleged collusion between AT&T Inc. (T - Free Report) and Verizon Communications Inc. (VZ - Free Report) to hinder consumers from easily switching wireless carriers. The bone of contention refers to the ESIM technology that allows consumers to switch wireless providers without having to insert a new physical SIM card, thereby making their businesses more volatile.

Regarding company-specific news, earnings of major telecom companies ruled the roost. The industry’s earnings in general appear to be on strong footing backed by healthy growth dynamics thanks to the existing secular trends in cloud computing, artificial intelligence and Big Data.

Recap of the Week’s Most Important Stories

1.    Verizon started 2018 on a positive note with a relatively healthy performance in the first quarter, primarily led by the wireless business. The bottom line also benefited from significant savings from the tax reform.

GAAP earnings for the reported quarter were $4,666 million or $1.11 per share compared with $3,553 million or 84 cents per share in the year-ago quarter. Excluding non-recurring items, adjusted earnings were $1.17 per share compared with 95 cents in the year-earlier quarter, comfortably exceeding the Zacks Consensus Estimate of $1.11. Consolidated GAAP revenues increased 6.6% year over year to $31,772 million on the back of solid performance in the wireless business. Excluding revenues from divested businesses, non-GAAP consolidated revenues were $29.9 billion, which missed the Zacks Consensus Estimate of $31,157 million. (Read more: Verizon Beats Q1 Earnings on Solid Wireless Business)

2.    In first-quarter 2018 results, Ericsson (ERIC - Free Report) reported a non-IFRS income of SEK 0.11 (1 cent) per share (excluding amortizations, write-downs of acquired intangible assets and restructuring charges) against loss of SEK 2.19 in the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of loss of 3 cents.

Net sales for the quarter fell 9% year over year to SEK 43.4 billion ($5.3 billion). The top line, however, missed the Zacks Consensus Estimate of $5,547 million. This was mainly due to lower revenues in market areas North East Asia as well as in South East Asia, Oceania and India. (Read more: Ericsson Q1 Loss Narrower Than Expected, Revenues Lag)

3.    Qualcomm Incorporated (QCOM - Free Report) reported healthy results for second-quarter fiscal 2018 (ended Mar 25, 2018), supported by better-than-expected performance in semiconductor business and lower operating expenses.

On a GAAP basis, quarterly net income came in at $363 million or 24 cents per share compared with $749 million or 50 cents in the year-ago quarter. Adjusted earnings per share were 80 cents, comfortably surpassing the Zacks Consensus Estimate of 70 cents. Quarterly total revenues of $5,261 million increased 13% year over year. Moreover, the figure surpassed the Zacks Consensus Estimate of $5,201 million. (Read more: Qualcomm Beats Q2 Earnings and Revenue Estimates)

4.    AT&T reported mixed first-quarter 2018 results, with the top and the bottom lines missing the respective Zacks Consensus Estimate despite solid prepaid phone gains, record low first-quarter postpaid phone churn and continued DIRECTV NOW subscriber growth.

On a GAAP basis, AT&T reported net income of $4,662 million or 75 cents per share compared with $3,469 million or 56 cents per share in the year-ago quarter. Excluding non-recurring items, adjusted earnings were 85 cents per share compared with 74 cents in the year-earlier quarter. Adjusted earnings, however, missed the Zacks Consensus Estimate of 87 cents. Consolidated revenues decreased 3.4% year over year to $38,038 million, primarily due to decline in legacy services, adverse impact of the transition of video from linear to over-the-top services and divesture of low-margin businesses. Revenues also missed the Zacks Consensus Estimate of $39,452 million. (Read more: AT&T Misses on Q1 Earnings & Revenues, Reiterates View)

5.    In a concerted move to meet the stringent low-latency data processing demands of Cloud RAN, Nokia Corporation (NOK - Free Report) launched the industry's first Edge Cloud data center solution. The product expands Nokia’s AirFrame portfolio and enables it to deliver layered network architecture, optimizing performance and operator costs to help them prepare for 5G technology.

Price Performance

The following table shows the price movement of some the major telecom stocks over the past week and during the last six months.

In the last five trading days, Verizon was the major gainer with its share price rising 3% while Qualcomm was the major loser, with its stock declining 11%.


 

 

 

 

 

 

 

 

 

Over the last six months, Motorola Solutions, Inc. (MSI - Free Report) was the best performer with its stock appreciating 17.5%, while Sprint Corporation (S - Free Report) was the major decliner with its shares falling 16.3%.

Over the last six months, the Zacks Telecommunications Services industry underperformed the benchmark S&P 500 index with an average decline of 1% against a gain of 2.2% for the latter.



What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to major earnings releases of the sector next week, namely SBA Communications Corporation (SBAC - Free Report) , Juniper Networks, Inc. (JNPR - Free Report) and Harris Corporation (HRS - Free Report) .

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