Telecom Stock Roundup: Verizon Beats on Q3 Earnings, AT&T's 3-Year View & More

In the past five trading days, telecom stocks witnessed a downtrend as fresh developments threatened to jeopardize the proposed “Phase One” deal between the United States and China.  The partial trade accord was likely to ease the bilateral tensions created by the prolonged trade war. However, simmering tensions and political undercurrents raised speculations about a probable signing of an agreement in mid-November between President Trump and his Chinese counterpart. In addition, lower-than-expected earnings performance and relatively soft outlook from hitherto declared results have triggered uncertainty within the beleaguered sector.

The FCC has formulated draft proposals that intend to bar U.S. telecom firms from using funds from its Universal Services Fund to buy equipment from such companies that are deemed to be national security threats. The agency is also working out the finer details of a policy that would enable domestic firms to rip off equipment from Chinese telecom manufacturers like Huawei and ZTE to eliminate the threat of data espionage. The FCC is scheduled to vote on the proposals on Nov 19, before they are forwarded to the President for formal approval.

The “economic bullying” at a critical juncture of the trade negotiation process has cast a shadow on the “Phase One” deal as China has raised objections to such unilateral move without any concrete evidence. Moreover, the sudden cancellation of the Asia-Pacific Economic Cooperation summit in Chile due to the political turmoil within the country has created a new obstacle for the Sino-U.S. relations. The White House is reportedly seeking some alternate venues for signing the initial trade agreement, although no official location has yet been confirmed. The U.S. government is also considering extending the tariff exemptions on $34 billion worth of Chinese imports that are slated expire at the end of this year.

Although both sides remain intent to reach a consensus deal at the earliest on domestic compulsions, it appears that the trade war has been rather a ‘two-steps forward, three-steps backward’ affair. This, in turn, has largely dragged the sector down despite the fact that the S&P is hovering around record-high territories backed by broad-based expectations of a trade settlement and the Fed’s interest rate cut.

Regarding company-specific news, quarterly earnings primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.      Verizon Communications Inc. VZ reported solid third-quarter 2019 results, primarily led by the wireless business. With industry-leading wireless products and services, the company remains well poised to benefit from increased 5G deployment across the country under the new operational framework.

Excluding non-recurring items, adjusted earnings were $1.25 per share compared with $1.22 in the year-earlier quarter and beat the Zacks Consensus Estimate by a penny. Consolidated GAAP operating revenues improved 0.9% year over year to $32,894 million as wireless service revenue growth was partially offset by lower wireless equipment and decline in legacy wireline revenues. The top line beat the Zacks Consensus Estimate of $32,715 million. (Read more: Verizon Q3 Earnings Beat Estimates on Wireless Strength)
 
2.     AT&T Inc. T reported relatively tepid third-quarter 2019 results with year-over-year decline in GAAP earnings and revenues due to lower-than-anticipated performance from legacy wireline services and WarnerMedia businesses. The company has offered a three-year guidance and financial allocation plan, which is expected to drive significant improvement in margins and bottom-line growth with sustained investments and debt reduction.

Excluding non-recurring items, adjusted earnings for the quarter were 94 cents per share compared with 90 cents in the year-earlier quarter, and exceeded the Zacks Consensus Estimate by a penny. Quarterly GAAP operating revenues decreased 2.5% year over year to $44,588 million, largely due to lower revenues from legacy wireline services, WarnerMedia and domestic video, partially offset by growth in strategic and managed business services, domestic wireless services and IP broadband. The top line missed the Zacks Consensus Estimate of $45,006 million. (Read more: AT&T Beats on Q3 Earnings, Offers 3-Year Financial View)

3.      T-Mobile US, Inc. TMUS reported solid third-quarter 2019 results, with record-high service revenues of $8.6 billion. Both the top line and the bottom line increased on a year-over-year basis.

Adjusted earnings per share came in at $1.16 compared with 93 cents reported in the year-ago quarter, beating the Zacks Consensus Estimate by 19 cents. Quarterly total revenues increased 2% year over year to $11,061 million driven by growth in service revenues, partially offset by a decrease in equipment revenues due to a decline in the number of devices sold. The top line, however, lagged the consensus estimate of $11,308 million. (Read more: T-Mobile Q3 Earnings Surpass Estimates, Revenues Grow)

4.     Nokia Corporation NOK reported mixed third-quarter 2019 financial results, wherein the top line beat the Zacks Consensus Estimate but the bottom line missed the same.

Non-IFRS profit came in at €264 million ($293.5 million) or €0.05 (6 cents) per share compared with €309 million or €0.06 per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by a penny. Quarterly non-IFRS net sales grew 4.2% year over year to €5,688 million ($6,323.2 million), surpassing the consensus estimate of $6,307 million. (Read more: Nokia Misses on Q3 Earnings, Cuts 2019 & 2020 Outlook)

5.     Juniper Networks, Inc. JNPR reported mixed third-quarter 2019 financial results, wherein the bottom line topped the Zacks Consensus Estimate but the top line missed the same. Both earnings and revenues decreased on a year-over-year basis.

Non-GAAP net income was $166.6 million or 48 cents per share compared with $191 million or 54 cents per share reported a year ago. The bottom line beat the Zacks Consensus Estimate by 2 cents. Quarterly total net revenues were $1,133.1 million (slightly below the midpoint of the company’s guidance range) compared with $1,179.8 million reported in the prior-year quarter. The top line lagged the consensus estimate of $1,142 million. (Read more: Juniper Q3 Earnings Beat Estimates, Revenues Down Y/Y)

Price Performance

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

In the past five trading days, Qualcomm was the biggest gainer with its share price increasing 6.2%, while Motorola was the biggest decliner with its stock down 2.3%.

Over the past six months, AT&T has been the best performer with its stock appreciating 19%, while Arista Networks was the biggest decliner with its stock down 26.8%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 5% and the S&P 500 has rallied 3%.

What’s Next in the Telecom Space?

In addition to quarterly earnings, strategic deals and 5G deployments, all eyes will remain glued to how the government handles the various issues related to the “Phase One” deal.

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Juniper Networks, Inc. (JNPR) : Free Stock Analysis Report
 
Nokia Corporation (NOK) : Free Stock Analysis Report
 
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
T-Mobile US, Inc. (TMUS) : Free Stock Analysis Report
 
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