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Will Healthy Top-Line Growth Buoy AT&T (T) Q2 Earnings?

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AT&T Inc. (T - Free Report) is scheduled to report second-quarter 2019 results before the opening bell on Jul 24. The company is likely to record higher revenues on the back of solid performance from the Wireless business and incremental contribution from WarnerMedia assets and digital ad market.

Whether this will benefit its bottom line remains to be seen.

Top-Line Expansion

During the second quarter, AT&T introduced mobile 5G services in certain areas of seven U.S. cities, namely, Austin, Los Angeles, Nashville, Orlando, San Diego, San Francisco and San Jose. With this, the company has deployed mobile 5G services in 19 cities across the country. Markedly, its 5G service involves utilization of millimeter wave spectrum for deployment in dense pockets, while mid- and low-band spectrum holdings are likely to be used in suburban and rural areas.

Following the completion of the latest round of telecom spectrum auction by the Federal Communications Commission – FCC Auction 102 – AT&T has emerged as the leading bidder among all participants. The company has reportedly won spectrum licenses that cover about 98% of the U.S. population, offering it a competitive advantage for seamless 5G deployment across the country. This is likely to be reflected in the upcoming results.

AT&T seems to be keen to generate additional revenues from more video content and subsequent ads through these videos. This, in turn, would enable the company to capture a greater market share in the digital ad business and augment its position as a media behemoth with significant presence in the telecommunication sector. During the quarter, AT&T’s advertising and analytics division Xandr unveiled an ad-buying platform, Xandr Invest. Markedly, the new platform will allow advertisers to put ads on premium and brand content on AT&T-owned assets such as TV networks CNN, TBS and TNT. Also, it will be the only ad-buying platform for Community — Xandr’s premium video marketplace. The latest move is aimed at attracting advertisers with exceptional access to the telecom behemoth’s customer data, while facilitating businesses to purchase ad space across varied formats.

Xandr Invest is aligned to merge AT&T’s two different buyouts — media company Time Warner and ad technology company AppNexus — to grow its business beyond a wireless service provider. The platform includes an offering named programmatic guaranteed, which will enable advertisers to reserve ads on premium content that may have limited supply.

In second-quarter 2019, AT&T collaborated with Hewlett Packard Enterprise Company to facilitate diverse businesses to harness edge connections and edge computing capabilities. Together, the companies aim to offer a flexible tool to better analyze data and process low-latency, high-bandwidth applications for faster access to data processing. The go-to-market alliance particularly seeks to enable customers to swiftly convert data into actionable intelligence, enabling unique digital experiences and smarter operations.

During the quarter, AT&T also divested its 9.5% ownership stake in Hulu — an U.S. entertainment firm that provides over-the-top streaming services — for $1.43 billion (£1.09 billion). AT&T aims to utilize the sale proceeds to reduce its burgeoning debt burden that swelled to $176.5 billion at year-end 2018 primarily due to the acquisition of Time Warner assets.

Buoyed by such tailwinds, total revenues for the company are expected to be $44,963 million compared with $38,986 million reported in the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively show that AT&T will beat earnings this quarter as it does not possess the key components. 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. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.64%, with the former pegged at 88 cents and the latter at 89 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

 

AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to makes us reasonably confident of an earnings beat.

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

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Verizon Communications Inc. (VZ - Free Report) is slated to release quarterly numbers on Aug 1. It has an Earnings ESP of +0.29% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

NETGEAR Inc. (NTGR - Free Report) is scheduled to release results on Jul 24. The company has an Earnings ESP of +1.01% and has a Zacks Rank #3.

The Earnings ESP for United States Cellular Corporation (USM - Free Report) is +15.66% and it sports a Zacks Rank of 1. The company is likely to report quarterly numbers on Aug 2.

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