Will Healthy Top-Line Growth Benefit AT&T's (T) Q3 Earnings?

AT&T Inc. T is scheduled to report third-quarter 2018 results before the opening bell on Oct 24. The company is likely to record higher revenues from the Consumer Mobility segment, which accounts for the lion’s share of total revenues, on a year-over-year basis.

Whether this will benefit the bottom line of the company remains to be seen.

Top-Line Expansion

During the quarter, AT&T completed the acquisition of AppNexus, a technology firm that operates the world’s largest independent marketplace for digital advertising. With more than 34,000 publishers and 177,000 brands transacting in the marketplace, AppNexus allows advertisers to buy space across thousands of websites, targeting desired audiences. It operates in both lines of businesses helping publishers manage ad space on their sites as well as ad agencies purchase various ads. The transaction is therefore expected to place AT&T deeper into the digital ad realm.

Post integration, AppNexus has become an integral part of AT&T advertising & analytics business, bringing new capabilities to the market and improving the overall value of its robust ad-supported premium video content portfolio such as Turner Networks, Audience Network and Otter Media. The transaction also extends AT&T’s advertising and analytics’ footprint worldwide, expanding its reach in various markets across the Asia-Pacific, Australia, Europe and Latin America.

As part of its 5G deployment in a dozen cities in 2018, AT&T intends to launch mobile 5G service in certain areas of five cities, namely Houston, Jacksonville, Louisville, New Orleans and San Antonio this year. These add to its previously announced seven cities of Atlanta, Charlotte, Dallas, Indianapolis, Oklahoma City, Raleigh and Waco. The U.S. telco giant is further planning to bring mobile 5G service to parts of Las Vegas, Los Angeles, Nashville, Orlando, San Diego, San Francisco and San Jose in early 2019 to take the tally to 19 cities, and expand thereafter. Notably, AT&T’s 5G deployment will entail utilization of millimeter wave spectrum to deploy 5G. In parts of urban, suburban and rural areas, the company aims to deploy 5G on its mid and low-band spectrum holdings.

Over the past five years, AT&T has invested around $145 billion in wireless and wireline networks, including capital investments and acquisition of wireless spectrum and operations. Currently, the company’s wireless network covers more than 99% of Americans. Its fiber network is one of the nation’s largest and it connect more Internet of Things devices compared to any other provider in North America.

Buoyed by such tailwinds, the Zacks Consensus Estimate for revenues in the Consumer Mobility segment in the to-be-reported quarter is currently pegged at $15,167 million, which is relatively higher than the year-ago reported figure of $7,748 million. The higher revenue expectations can be attributed to an uptick in demand and an upgrade to state-of-the-art infrastructure.

Total revenues for the company are expected to be $45,630 million compared with $39,668 million reported in the prior-year quarter.

Other Key Factors

During the quarter, AT&T inked an agreement to acquire computer security firm AlienVault to augment its line of cybersecurity products designed for small and medium-sized businesses. The successful integration of AlienVault will allow AT&T to enhance its enterprise-grade security solutions portfolio and offerings to millions of small and medium-sized profit-making organizations. The buyout will synergize AlienVault's expertise with AT&T's cybersecurity solutions portfolio that includes threat detection and prevention as well as response technologies and services. After the acquisition closes, AT&T business customers will be able to access the unified security management platform that helps make organizations more effective at threat detection and response. AlienVault will be a significant part of AT&T’s Edge-to-Edge Intelligence capabilities.

At the same time, AT&T has collaborated with Harman International to give shape to the connected car concept on any existing model manufactured after 1996. The strategic deal would help the company to fuel business transformation through edge-to-edge capabilities in order to accommodate the evolving consumer needs. Together with AT&T, Harman has launched Harman Spark, an OBD-II (on-board diagnostics) dongle that adds diagnostics, tracking and LTE data to cars, bringing a whole new riding experience.

With such a holistic growth model, AT&T is likely to record solid performance in the upcoming earnings release.

Our proven model shows that AT&T is likely to beat earnings this quarter as it possesses 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 perfectly 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 +0.58%, with the former pegged at 94 cents and the latter at 93 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. Quote

Zacks Rank: AT&T has a Zacks Rank #3. This increases the predictive power of ESP and 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.

Other Stocks to Consider

Here are some other 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 is slated to release quarterly numbers on Oct 23. It has an Earnings ESP of +0.04% and a Zacks Rank #3.

United States Cellular Corporation USM is likely to release results around Nov 14. The company has an Earnings ESP of +57.45% and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for CenturyLink, Inc. CTL is +6.10% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 8.

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