Telecom Stock Roundup: AT&T Q2 Earnings Match, Verizon's 5G Device & More

In the past five trading days, telecom stocks witnessed a rocky start but partially recovered at the end of the week as the industry shook off regulatory threats and trade impediments for solid quarterly results. With the U.S. administration working closely with the leading technology companies to formulate a comprehensive policy that protects sovereign security interests on one hand and maintains competitive edge on the other, near-term prospects appear quite bright.

Federal officials along with experts from the telecom sector recently met at the Bureau of Industry and Security’s annual forum to deliberate on the level-playing field of 5G technology. A broad-based consensus decision was reached to encourage the government to utilize private capital in order to speed up the development of 5G technology in the United States to thwart the competition posed by China’s leading technology equipment manufacturer Huawei. Given the support and the quantum of subsidies offered by the Communist regime, it is widely believed that Huawei is likely to have a monopolistic control in the 5G market. In order to avert such a situation, industry experts urged the administration to use private equity to accelerate innovation and development of indigenous 5G technology and thereby safeguard national security interests.

President Trump also met with the top-level executives of several technology firms to discuss the framework of trade practices with China and national security issues. While the companies acknowledged the importance of definitive steps to protect the sovereign security interests, they urged the government to take ‘timely decisions’ to safeguard their own business welfare as well. The companies further pressed the administration to offer more clarity on policy issues and trade restrictions in place with Huawei. The ‘constructive’ discussions also bordered on the unfair international trade practices and the development of robust 5G technology to maintain a competitive edge in the market.

Bilateral trade negotiations moved at a sluggish pace as U.S. officials are slated to visit China next week. However, it remains uncertain whether the two sides would resume their dialogue from the draft text agreed upon before the pull back or use a different starting point for the proceedings. The talks are likely to deal with the various stumbling blocks, including intellectual property theft, forced transfer of foreign technology, large-scale subsidies, agriculture, trade deficit, and enforcement issues. The officials are also likely to ponder on Huawei’s alleged unfair trade practices with North Korea. However, Huawei has downplayed the accusations and are keen to resume the business ties as trade restrictions have hurt its U.S. operations, forcing it to layoff two-thirds of the 850-strong workforce at its research arm in the Silicon Valley.

Regarding company-specific news, quarterly earnings, strategic collaborations, and groundwork for regulatory clearance primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1. AT&T Inc. (NYSE:T) reported relatively mixed second-quarter 2019 results as higher operating expenses led to year-over-year decline in earnings, despite healthy top-line growth driven by solid domestic wireless business and incremental contribution from WarnerMedia assets.

Excluding non-recurring items, adjusted earnings for the quarter were 89 cents per share compared with 91 cents in the year-earlier quarter, and were in line with the Zacks Consensus Estimate. Quarterly GAAP operating revenues increased 15.3% year over year to $44,957 million, primarily due to the accretive Time Warner acquisition and solid performance by domestic wireless services and advertising unit Xandr. The top line, however, marginally missed the consensus estimate of $44,963 million. (Read more: AT&T's Q2 Earnings In Line, Revenues Miss Estimates)

2. Maintaining its lead in promulgating 5G network nationwide, Verizon Communications Inc. (NYSE:VZ) recently launched its fifth 5G-enabled device — Inseego Corp.’s MiFi M1000. Markedly, the Inseego MiFi is Verizon’s first business-ready 5G device that combines bandwidth and speed to meet customers’ expectations, with enterprise-grade security for businesses.

Furthermore, the telecom and media giant launched 5G Ultra Wideband mobility service in Saint Paul, MN. The latest addition joins Denver, Chicago, Minneapolis and Providence (in select locations) as the fifth of more than 30 Verizon 5G mobility cities that the company plans to launch in 2019. (Read more: Verizon Launches Inseego 5G MiFi, Service Reaches St. Paul)

3. Badger Meter, Inc. (NYSE:BMI) reported relatively lackluster second-quarter 2019 results with year-over-year decrease in revenues and adjusted earnings due to order postponements.

Adjusted earnings for the reported quarter were 39 cents per share compared with 42 cents in the year-earlier quarter. Adjusted earnings missed the Zacks Consensus Estimate by 8 cents. Net sales were $103.5 million compared with $113.6 million in the year-ago quarter as customers largely deferred orders awaiting the company’s next generation large static meters and LTE-M radio products. The top line lagged the consensus estimate of $117 million. (Read more: Badger Meter Q2 Earnings & Revenues Lag Estimates)

4. It has come to the fore that T-Mobile US (NASDAQ:TMUS), Inc. (NYSE:S) is on the verge of winning regulatory clearance from the Justice Department for its $26.5 billion pending merger with Sprint Corp. (NYSE:S) .

According to industry sources, DISH Network Corp (NASDAQ:DISH). has finally agreed to pay $5 billion for wireless assets of the two U.S. wireless carriers. The latest move is expected to allow the Justice Department to approve T-Mobile’s merger with Sprint. However, representatives for Dish, T-Mobile, Sprint and the Justice Department did not make any official announcement regarding this development. (Read more: T-Mobile & Sprint Merger Nears Approval, Dish to Buy Assets)

5. AT&T Inc.’s business segment, AT&T Communications recently entered into an extensive, multi-year technology collaboration with Microsoft Corporation (NASDAQ:MSFT).

Under this new strategic alliance, the two leading companies will accelerate innovation and apply cutting-edge technologies that include 5G, cloud and AI to transform every aspect of work and life. Microsoft will be the preferred cloud provider for non-network applications, as part of AT&T’s broader public cloud first strategy, and support the telecom giant as it consolidates data center infrastructure and operations. (Read more: AT&T Partners Microsoft on 5G, Cloud & AI to Advance Tech)

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, T-Mobile was the biggest gainer with its share price increasing 2.1% while CenturyLink (NYSE:CTL) was the biggest decliner with its stock down 2.8%.

Over the past six months, Qualcomm (NASDAQ:QCOM) has been the best performer with its stock appreciating 33.3%, while CenturyLink was the biggest decliner with its stock down 31.6%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 1.1% while the S&P 500 has rallied 12.5%.

What’s Next in the Telecom Space?

In addition to product launches, deployment of 5G technologies and the earnings season, all eyes will remain glued to how the United States and China continue their trade negotiations and its cascading effect on the industry.

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