In the past five trading days, telecom stocks continued to mirror the broader S&P 500 Index and initially trended down amid escalated fears of the coronavirus outbreak hurting the global economy. With the contagious disease spreading across the world despite precautionary measures and 12 positive cases confirmed in the United States to date, the markets remained apprehensive about possible repercussions. However, solid quarterly performance led by technology, energy, financials and healthcare sectors helped the markets to shrug off the negativity and script a turnaround at the later stages of the week.
China has been one of the most important markets for U.S. telecom firms. Despite quarantines and other safety measures, coronavirus, which originated in Wuhan, China, managed to spread, affecting more than 24,000 people in the mainland and killing nearly 500. This disrupted normal business operations and supply-chain mechanisms of various companies as they preferred to exercise caution and held their delivery schedules to and from the communist nation until the health risks were neutralized. This, in turn, triggered uncertainty within the industry, inducing a downtrend.
Meanwhile, the Trump administration is stepping up efforts to encourage domestic firms in developing common engineering standards for 5G networks to thwart the dominance of China-based telecommunications equipment manufacturer Huawei. The government is also reportedly tapping 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 with Nordic firms with long-term ties to the Silicon Valley like Ericsson and Nokia also pitching in. The 5G thrust is possibly gaining precedence as coronavirus has hampered the pace of 5G deployment in the communist nation.
In a follow-up of the U.S. Department of Justice’s enforcement action last week that sought temporary restraining orders on five domestic companies for fostering the robocall menace, the Federal Communications Commission has asked seven gateway service providers to help trace the international spam calls to its roots. It also sent letters to 19 Voice over Internet Protocol service providers, warning them of legal actions for facilitating illegal telemarketing or robocalling.
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 fourth-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 $1.13 per share compared with $1.12 in the year-earlier quarter and missed the Zacks Consensus Estimate by a couple of cents. Consolidated GAAP operating revenues for the quarter improved 1.4% year over year to $34,775 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 $34,520 million. (Read more: Verizon Misses on Q4 Earnings Despite Higher Revenues)
2. Woodward, Inc. WWD reported strong first-quarter fiscal 2020 results, wherein earnings and revenues jumped year over year. The company’s performance was primarily driven by healthy market fundamentals in the Aerospace segment and strong product portfolios.
Adjusted net earnings in the fiscal first quarter were $71.2 million or $1.10 per share compared with $61.6 million or 96 cents per share in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate by 7 cents. In the December quarter, net sales increased 10.3% year over year to $720.4 million and outperformed the consensus estimate of $667 million. (Read more: Woodward Q1 Earnings Beat Estimates, Revenues Up Y/Y)
3. Zayo Group Holdings, Inc. ZAYO reported solid second-quarter fiscal 2020 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate. In addition, both revenues and net income improved year over year on robust infrastructure capacity demand for webscale, content and cloud providers.
Net income for the December quarter was $61.4 million or 26 cents per share compared with $30.2 million or 13 cents per share a year ago. The two-fold rise in earnings despite higher operating costs was primarily driven by rise in revenues and favorable foreign currency impact. Also, the bottom line exceeded the Zacks Consensus Estimate by 8 cents. Quarterly revenues were $653.7 million, up 2.3% year over year on solid demand trends. Further, the top line beat the consensus estimate of $648 million. (Read more: Zayo Trumps Q2 Earnings Estimates on Higher Revenues)
4. Viavi Solutions Inc. VIAV reported impressive second-quarter fiscal 2020 (ended Dec 28, 2019) results, wherein the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year. The San Jose, CA-based company delivered record revenues, non-GAAP operating margin and non-GAAP earnings per share.
For the December quarter, non-GAAP net income came in at $55.6 million or 23 cents per share compared with $50.9 million or 22 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 4 cents. Quarterly total net revenues grew 2.2% year over year to $313.7 million and exceeded the company’s guided range of $292 million to $312 million. The top line surpassed the consensus estimate of $303 million. (Read more: Viavi Q2 Earnings Beat Estimates on Record Revenues)
5. Knowles Corporation KN reported mixed fourth-quarter 2019 results, wherein the top line rose year over year but the bottom line declined.
Quarterly non-GAAP net earnings were $33.3 million or 35 cents per share compared with $34.9 million or 37 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 5 cents. Quarterly revenues rose 4.5% to $233.9 million from $223.8 million in the year-ago quarter. The increase was largely attributable to robust sales performance in the Ear and IoT markets, partially offset by soft trends in Mobile. However, the top line lagged the consensus estimate of $238 million. (Read more: Knowles Q4 Earnings Lag Estimates, Revenues Up Y/Y)
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, CenturyLink has been the biggest gainer with share price increasing 4%, while Arista Networks has been the biggest decliner with its stock down 2.2%.
Over the past six months, Qualcomm has been the best performer with its stock appreciating 23.7%, while Juniper Networks has been the biggest decliner with its stock down 8.3%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 6.3%, while the S&P 500 has rallied 16.2%.
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.
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