ETFs In Focus After AT&T's Mixed Q1 Results

Shares of AT&T Inc (NYSE:T) dropped 0.20% at market close on Tuesday, April 25, 2017 as the company missed revenue estimates for the first quarter of 2017. Earnings however came in line with the same. The company also reported a 2.8% year-over-year decrease in revenues to $39.4 billion in the first quarter of 2017. It was also down from $41.84 billion reported in the fourth quarter of 2016.

Q1 Performance

AT&T reported non-GAAP earnings per share of $0.74, which met the Zacks Consensus Estimate. However, AT&T’s first quarter revenues missed the consensus mark of $40.66 billion, primarily due to poor performance of the wireless business.

Revenue Performance

Business Solutions segment revenues decreased to $16.84 billion from $17.60 billion a year ago.

Entertainment group revenues decreased to $12.62 billion from $12.65 billion in the year-ago period.

Consumer Mobility revenues increased to $7.74 billion from $8.32 billion a year ago.

International revenues increased to $1.92 billion from $1.66 billion a year ago.

Wireless Business Performance

AT&T reported revenues of $17.16 billion from its wireless business compared with $17.95 billion in the year-ago quarter. The telecom company attributed this decline of 4.4% primarily to its loss of 191,000 postpaid customers, who generally spend more. It also stated that it added 282,000 prepaid customers in the quarter.

Outlook

AT&T stopped providing consolidated revenue guidance, attributing it to the unpredictable nature of its wireless handset sales. It expects capital spending to be in the $22 billion range. The company expects free cash flow to be approximately $18 billion.

In the current scenario, let’s have a look at some ETFs that have a relatively high exposure to AT&T.

Vanguard Telecommunication Services ETF (MU:VOX) :

This ETF is one of the most popular funds in the telecom space (read: Welcome Trump Era with These ETFs).

It has AUM of $1.40 billion and charges 10 basis points as fees per year. The fund has a 23.20% exposure to AT&T (as of March 31, 2017). The fund returned 4.66 % in the last one year but lost 2.292% in the year-to-date time frame (as of April 25, 2017). It closed 0.89% higher on Tuesday, April 25, 2017. VOX currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Fidelity MSCI Telecommunication Services ETF FCOM:

This ETF provides exposure to the U.S. telecom space at a really low expense ratio.

It has AUM of $139.9 million and charges 8 basis points as fees per year. The fund has a 20.91% exposure to AT&T (as of April 24, 2017). The fund returned 9.14% in the last one year and 3.02% in the year-to-date time frame (as of April 25, 2017). It closed 1.60% higher on Tuesday, April 25, 2017. FCOM currently has a Zacks ETF Rank #3 with a Medium risk outlook (read: Telecom ETFs: What Lies Ahead in 2017?).

iShares Global Telecom ETF IXP

This ETF provides exposure to the global telecom industry.

It has AUM of $301.94 million and charges 47 basis points as fees per year. Considering the top three holdings from a geographical perspective, the fund has 37.89% exposure to the U.S., 16.76% to Japan, and 8.38% to United Kingdom (as of April 24, 2017). The fund has 19.86% exposure to AT&T (as of April 24, 2017). The fund lost 5.65% in the last one year but gained 1.02% in the year-to-date time frame (as of April 25, 2017). It closed 0.07% higher on Tuesday, April 25, 2017. IXP currently has a Zacks ETF Rank #3 with a Medium risk outlook.

Below is a chart comparing the performance of the funds and AT&T Inc.

Source: Yahoo (NASDAQ:YHOO) Finance

Bottom Line

AT&T was in talks to acquire Straight Path Communications (NYSE:T) to expand into the 5G space. However, Straight Path announced yesterday that it is evaluating a superior offer from another multi-national telecom giant to acquire 100% of the company. Moreover, AT&T is yet to receive regulatory approval for its $85 billion acquisition of Time Warner (NYSE:TWX) . This may put a brake on its plans considering the increased merger activity taking place in the telecom industry. For the time being, we believe it is best to be on the sidelines (read: AT&T to Buy Straight Path Communications: ETFs in Focus).

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