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Telecom Stock Roundup: Mixed Q3 for Major Telecom Operators

Last week has been quite unappealing for the telecom sector with large operators losing ground. This was primarily attributed to the not-so-impressive performance of these telecom firms in the third quarter of 2016.

Verizon Communications Inc. VZ reported mixed financial numbers in the quarter with the top line missing the Zacks Consensus Estimate and the bottom line beating the same. Revenues at the Wireless and Wireline segments were down 3.9% and 2.3%, respectively, year over year. During the third quarter, the company added 0.442 million postpaid customers (down 65.7% year over year).

AT&T Inc. T also reported mixed results for the third quarter of 2016.While revenues failed to meet the Zacks Consensus Estimate, earnings were in line with the same.In the reported quarter, the company’s total international video customers declined by 47,000. AT&T also lost 326,000 U-verse customers but gained 323,000 satellite TV customers. The Consumer Mobility segment gained a net of 21,000 postpaid wireless customers and 304,000 prepaid customers.

T-Mobile US Inc. TMUS also followed suite, posting mixed third quarter results. While the top line missed the Zacks Consensus Estimate, the bottom line managed to beat the same. Nevertheless, the company continues to gain postpaid wireless customers, which has encouraged management to raise the subscriber gain outlook for 2016. As of Sep 30, 2016, the total customer base of T-Mobile US was 69.354 million, up 13.3% year over year. Branded postpaid phone customers totaled 30.364 million, up 6.8%. Branded postpaid mobile broadband customer count was 2.866 million, up a massive 45.8%.

On the other hand, Sprint Corp. S reported impressive financial results for the second quarter of fiscal 2016. The company reported a year-over-year decline in loss which was also narrower than the Zacks Consensus Estimate. Meanwhile, revenues beat the Zacks Consensus Estimate. In the reported quarter, Sprint gained 344,000 postpaid subscribers. As of Sep 30, 2016, Sprint had 60.193 million wireless customers, up 4% year over year. This includes 31.289 million postpaid, 13.547 million prepaid and 15.357 million wholesale customers.

Leading cable MSO (multi service operator) Comcast Corp. CMCSA reported third quarter results wherein the top line outpaced the Zacks Consensus Estimate and the bottom line met the same. The company added a net of 330,000 high-speed Internet customers, 32,000 video customers and 2,000 voice customers in the reported quarter. Comcast currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Leading wireless tower operator Crown Castle International Corp. CCI also reported mixed financial numbers in the third quarter of 2016, wherein the top line outpaced the Zacks Consensus Estimate while the bottom line fell short of the same.

Major M&A Deal

In a major thrust to the ongoing consolidation trend between the telecom and media sectors, U.S. telecom behemoth AT&T has agreed to acquire media giant Time Warner Inc. TWX in a $85.4 billion cash-and-stock deal. AT&T’s management expects the deal to be accretive to both adjusted earnings and free cash flow in the first year post its closure. The company is likely to achieve cost synergies of $1 billion per annum within the first three years of the merger.  The company expects the deal to help diversify its revenue mix, lower capital expenditure and reduce regulatory restrictions.

Read the last Telecom Stock Roundup for Oct 20, 2016 .

Recap of the Week’s Most Important Stories

1.    Verizon’s third quarter adjusted earnings per share came in at $1.01 in the reported quarter, beating the Zacks Consensus Estimate of 99 cents. Quarterly GAAP net income was $3,747 million compared with $4,171 million in the year-ago quarter.Quarterly total revenue decreased 6.7% year over year to $30,937 million. The Zacks Consensus Estimate for the same was pegged at $31,141 million. (read more: Verizon Posts Mixed Q3: Earnings Beat, Revenues Lag .)

2.    On a GAAP basis, AT&T reported net income of $3,328 million or 54 cents per share in comparison with $2,994 million or 50 cents, respectively, in the year-ago quarter. Quarterly adjusted earnings per share were 74 cents, in line with the Zacks Consensus Estimate. Quarterly total revenue increased 4.60% year over year to $40,890 million but fell below the Zacks Consensus Estimate of $41,095 million. (read more: AT&T Earnings Meet, Revenues Miss Estimates in Q3 .)

3.    GAAP net income of T-Mobile US in the third quarter of 2016 was $366 million or 42 cents per share compared with net income of $138 million or 15 cents in the year-ago quarter. Quarterly adjusted earnings per share came in at 27 cents, above the Zacks Consensus Estimate of 22 cents. Total revenue increased 17.8% year over year to $9,246 million in the third quarter, below the Zacks Consensus Estimate of $9,441 million. (read more:  T-Mobile US Tops Q3 Earnings Estimates, Lifts View .)

4.    Quarterly net loss of Sprint was $142 million or 4 cents per share, much narrower than a net loss of $585 million or 15 cents per share in the year-ago quarter. Also, second-quarter adjusted net loss per share of 4 cents was narrower than the Zacks Consensus Estimate of a loss of 7 cents. Quarterly total revenue came in at $8,247 million, up 3.4% year over year but ahead of the Zacks Consensus Estimate of $7,986 million. (read more:  Sprint Q2 Loss Narrower than Expected, ’16 View Raised .)

5.    Comcast’s GAAP net income in the third quarter of 2016 came in at $2,237 million or 92 cents per share compared with $1,996 million or 80 cents in the prior-year quarter. Quarterly earnings per share of 92 cents were in line with the Zacks Consensus Estimate. Quarterly total revenue was $21,319 million, up 14.2% year over year and ahead of the Zacks Consensus Estimate of $21,178 million. (read more: Comcast Q3 Earnings in Line, Revenues Beat .)

Price Performance

The following table shows the price movement of the major telecom players over the past week and the last six months.

CompanyLast WeekLast 6 Months
VZ-5.55%-7.85%
T-7.98%-5.91%
S-7.83%72.83%
TMUS5.39%24.69%
VOD0.36%-15.96%
CHL-2.39%-1.34%
AMX-1.00%-24.28%
CMCSA-3.58%2.06%
DISH0.92%16.51%

Over the last five trading sessions, share price movement of major telecom stocks was predominantly negative. AT&T (7.98%), Sprint (7.83%), Verizon (5.55%) and Comcast (3.58%) lost significant value in the last five trading sessions. Only T-Mobile US saw an impressive gain of 5.39%.

However, over the last six months, the price performance of most telecom stocks witnessed a mixed trend. Among the stocks that gained considerably were Sprint (72.83%), T-Mobile US (24.69%) and DISH (16.51%). On the other hand, America Movil and Vodafone lost 24.28% and 15.96%, respectively, over the same time frame.

What’s Next in the Telecom Sector?

We expect a lot of activity in the telecom sector over the next week as several telecom operators like Frontier Communications, CenturyLink, Cincinnati Bell and CableONE are slated to release their quarterly results. In addition, major wireless towers operator American Tower and largest mobile chipset developer Qualcomm will also release their results.

Non-US telecom bigwigs such as Shaw Communications, America Movil, Telefonica, Chunghwa Telecom, Grupo Televisa and SK Telecom will come up with their quarterly results as well. The market will closely evaluate these quarterly results in a bid to assess industry dynamics and growth prospects.

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TIME WARNER INC (TWX): Free Stock Analysis Report

CROWN CASTLE (CCI): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

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T-MOBILE US INC (TMUS): Free Stock Analysis Report

Source: Nasdaq

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