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Telecom Stock Roundup: T-Mobile-Sprint Merger Approval, Qualcomm's Solid Q1 & More

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In the past five trading days, telecom stocks rallied on solid quarterly performance, shrugging off the negativity triggered by fears of the global economy being hurt by coronavirus outbreak. A historic approval for the industry consolidation that could speed up the rollout of a national 5G network was the cynosure of the week. Federal efforts to encourage domestic firms in developing common engineering standards for 5G networks to thwart the dominance of China-based telecommunications equipment manufacturer Huawei further acted as catalysts.

The Trump administration is reportedly encouraging technology behemoths like Dell and Microsoft to build 5G-centric hardware so that the bulk of 5G architecture and infrastructure is made by U.S. firms. The government is also considering financing Nordic firms with long-term ties to the Silicon Valley like Ericsson and Nokia to deter Huawei. This is likely to be either achieved through direct funding or through consortium of private American and allied companies, backed by government funding. The 5G thrust is possibly gaining precedence as the coronavirus epidemic has hampered the pace of 5G deployment in the communist nation.

Meanwhile, President Trump has signed an executive order directing federal agencies to devise a plan within a year to test the vulnerabilities of critical infrastructure systems against potential disruption or manipulation of GPS that form the backbone of electrical power grids, weather forecasting, traffic signals, smartphone applications and vehicle navigation systems. The move follows heightened U.S. concerns about the U.K. government (its close ally) allowing Huawei to play a limited role in the 5G mobile network rollout across the country, mostly restricting its participation to non-core areas that do not involve ‘sensitive functions’.

After a prolonged stand-off, the Federal Court finally gave green signal to the merger of T-Mobile US, Inc. (TMUS - Free Report) with Sprint Corporation – the third and the fourth-largest wireless companies in the country. Allaying antitrust concerns, the judge observed that the merger would create an entity that would thwart the dominance of China in the 5G market and benefit the larger community with superior rural broadband coverage. The all-stock merger will help accelerate development of faster 5G wireless networks driven by operational synergies and extended customer base on shared infrastructure assets. The combined entity will be a force to reckon with in the U.S. wireless, video and broadband industries, boasting a network capacity for a nationwide 5G network deployment. The agreement also establishes Dish as a disruptive force in the wireless industry, redefining the broader industry metrics.  

Regarding company-specific news, approval for the mega-merger transaction and quarterly earnings primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     After receiving green signal for the long-pending $26.5 billion merger of the third- and fourth-largest (by subscribers) national wireless carriers in Federal Court on Tuesday, shares of T-Mobile and Sprint gained 11.78% and 77.50%, respectively.

Repudiating a lawsuit by a group of states to block the combination, the ruling clears the path to create a strong rival in 5G wireless services to Verizon Communications Inc. and AT&T Inc. While Judge Victor Marrero approved the deal without stipulations, the Department of Justice and Federal Communications Commission had earlier sanctioned it when the carriers agreed to sell some assets to Dish Network. (Read more: T-Mobile-Sprint Merger Gets Federal Judge's Nod, Stocks Rally)
 
2.      Qualcomm Incorporated (QCOM - Free Report) reported solid first-quarter fiscal 2020 results with healthy year-over-year top-line increase, primarily driven by the ramp up of 5G-enabled chips. In addition, both the top and the bottom-line figures beat the respective Zacks Consensus Estimate as the company reached a significant inflection point.

Quarterly non-GAAP net income came in at $1,151 million or 99 cents per share compared with $1,464 million or $1.20 per share in the year-ago quarter. The bottom line exceeded the top end of management’s guidance and beat the Zacks Consensus Estimate by 14 cents. On a GAAP basis, total revenues in the fiscal first quarter were $5,077 million compared with $4,842 million in the prior-year quarter. The figure surpassed the consensus estimate of $4,825 million and was near the higher end of the earlier guided range, driven by 5G strength, high-performing core chipsets and new RF front-end content. (Read more: Qualcomm Trumps Q1 Earnings Estimates on 5G Strength)

3.      Nokia Corporation (NOK - Free Report) reported impressive fourth-quarter 2019 results, wherein the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year.

Quarterly non-IFRS profit came in at €821 million ($908.9 million) or €0.15 (17 cents) per share compared with €741 million or €0.13 per share in the prior-year quarter. This reflects progress in cost savings, which resulted in lower operating expenses across Networks, Nokia Software and Nokia Technologies. The bottom line surpassed the Zacks Consensus Estimate by 4 cents. Fourth-quarter non-IFRS net sales were €6,903 million ($7,642.4 million) compared with €6,872 million in the prior-year quarter. The top line surpassed the consensus estimate of $7,381 million. (Read more: Nokia Q4 Earnings & Revenues Beat Estimates, Rise Y/Y)

4.      T-Mobile reported impressive fourth-quarter 2019 results, wherein the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year.

Net income for the December quarter was $751 million or 87 cents per share compared with $640 million or 75 cents per share in the year-ago quarter. The improvement was primarily driven by higher operating income. The bottom line surpassed the Zacks Consensus Estimate by 4 cents. Quarterly aggregate revenues increased 3.8% year over year to $11,878 million led by growth in service revenues. The top line surpassed the consensus estimate of $11,816 million. (Read more: T-Mobile Q4 Earnings Top Estimates on Record Revenues)

5.       Ubiquiti Inc. (UI - Free Report) reported relatively modest second-quarter fiscal 2020 results, wherein the bottom line increased year over year and matched the Zacks Consensus Estimate.

Non-GAAP earnings came in at $91.4 million or $1.40 per share compared with $95.1 million or $1.33 per share in the year-ago quarter. The bottom line was in sync with the Zacks Consensus Estimate. Quarterly revenues were relatively flat at $308.3 million and missed the consensus estimate of $343 million. (Read more: Ubiquiti's Q2 Earnings Match Estimates, Shares Fall)

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and six-month period.



In the past five trading days, T-Mobile has been the biggest gainer with its share price increasing 14.5%, while Verizon has been the sole decliner with its stock down 1.5%.

Over the past six months, CenturyLink has been the best performer with its stock appreciating 25.5%, while none declined.

Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 9.1%, while the S&P 500 has rallied 16.1%.



What’s Next in the Telecom Space?

In addition to product launches, strategic deals and 5G deployments, all eyes will remain glued to how the earnings season unfolds for the rest of the industry participants.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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