Telecom Stock Roundup: T-Mobile, Corning Q2 Earnings Increase Y/Y, & More

In the past five trading days, telecom stocks initially witnessed a steep ascent followed by a relatively flat trajectory, culminating into an eventful week that is likely to reshape the industry dynamics. A historic approval for the industry consolidation was the cynosure of the week. Solid quarterly performance on average lent stability, with the industry appearing resilient to shake off the regulatory threats and trade impediments. The Sino-U.S. high-level officials also held ‘constructive’ face-to-face discussions on the various stumbling blocks affecting the bilateral trade and pledged to continue their negotiations next month.

After a prolonged stand-off, the U.S. Department of Justice finally gave green signal for the merger of T-Mobile US (NASDAQ:TMUS), Inc. (NYSE:S) with Sprint Corp. (NYSE:S) – the third and the fourth-largest wireless companies in the country. Allaying antitrust concerns, the authorities observed that the merger would create an entity that would thwart the dominance of China in the 5G market and benefit the larger community with superior rural broadband coverage. In addition, a $5-billion deal with Dish Network for divesting Sprint’s prepaid wireless businesses, including Boost Mobile, and some of its spectrum cleared the decks for the formation of a new entity in the wireless industry.

The all-stock merger will help accelerate development of faster 5G wireless networks driven by operational synergies and extended customer base on shared infrastructure assets. The New T-Mobile will have a strong closing balance sheet and a fully funded business plan with a strong foundation of secured investment grade debt at close. The combined entity will be a force to reckon with in the U.S. wireless, video and broadband industries, boasting a network capacity for a nationwide 5G network deployment. The agreement also establishes Dish as a disruptive force in the wireless industry, redefining the broader industry metrics.

Bilateral trade negotiations moved at a sluggish pace as U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin traveled to Shanghai, China, for a high-level meeting with Vice Premier Liu He. Despite ‘constructive’ talks regarding intellectual property theft, forced transfer of foreign technology, large-scale subsidies, agriculture, trade deficit, and enforcement issues, no major breakthrough was realized. However, the officials decided to meet again in September in Washington to reach a deal. No further clarity was offered about the various trade restrictions that are still in place, although U.S. Commerce Secretary Wilbur Ross hinted that the Trump administration could come up with a decision next week regarding the issue of licenses to sell telecom equipment to Chinese telecom giant Huawei.

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. T-Mobile reported solid second-quarter 2019 results, with record low branded postpaid phone churn and record high service revenues. The company continues to successfully translate customer growth into industry-leading service revenue growth. Both the top line and the bottom line increased on a year-over-year basis.

Adjusted earnings per share came in at $1.29 compared with 92 cents reported in the year-ago quarter, beating the Zacks Consensus Estimate by 30 cents. Quarterly total revenues increased 3.9% year over year to $10,979 million driven by growth in service revenues. However, the momentum was partly offset by decrease in equipment revenues. The top line lagged the consensus estimate of $11,139 million. (Read more: T-Mobile Q2 Earnings Beat, Revenues Grow)

2. Corning Incorporated (NYSE:GLW) reported solid second-quarter 2019 results driven by its technology and manufacturing leadership, and investments across multiple businesses.

Core earnings came in at $410 million or 45 cents per share compared with $359 million or 38 cents per share in the year-earlier quarter, reflecting year-over-year sales and earnings growth across all businesses. The bottom line beat the Zacks Consensus Estimate by a penny. Quarterly GAAP net sales were up 7% year over year to $2,940 million driven by growth in every business segment. Core sales increased 8.2% to $2,986 million, surpassing the consensus estimate of $2,975 million. (Read more: Corning Q2 Earnings & Revenues Beat Estimates, Up Y/Y)

3. Nokia (HE:NOKIA) Corporation (NYSE:NOK) reported solid second-quarter 2019 results on the back of 5G demand, a competitive end-to-end portfolio and improved operational strategy execution.

Non-IFRS profit came in at €258 million ($289.9 million) or €0.05 (6 cents) per share compared with €144 million or €0.03 per share in the prior-year quarter. The growth was mainly backed by solid operational execution, which yielded gross profit improvements across Networks, Nokia Software and Nokia Technologies. The bottom line beat the Zacks Consensus Estimate by 5 cents. Non-IFRS net sales grew 7.1% to €5,696 million ($6,400.4 million), surpassing the consensus estimate of $6,058 million. (Read more: Nokia Q2 Earnings Beat, Sales Up Y/Y, 5G Plan on Track)

4. Juniper Networks, Inc. (NYSE:JNPR) reported lackluster second-quarter 2019 financial results, wherein both the top line and the bottom line decreased on a year-over-year basis.

Non-GAAP net income was $139.5 million or 40 cents per share compared with $170.2 million or 48 cents per share reported a year ago. The bottom line matched the Zacks Consensus Estimate. Quarterly total net revenues were $1,102.5 million compared with $1,204.1 million reported in the prior-year quarter. This was primarily due to weakness within the service provider and enterprise verticals. The top line lagged the consensus estimate of $1,110 million. (Read more: Juniper's Q2 Earnings In Line, Revenues Down Y/Y)

5. NETGEAR, Inc. (NASDAQ:NTGR) reported relatively solid second-quarter 2019 results, surpassing both top line and bottom-line estimates. The better-than-expected performance was driven by strength in its Orbi line of mesh WiFi systems, Nighthawk Pro Gaming, cable modems and gateways and SMB switching portfolio.

Non-GAAP net income from continuing operations was 28 cents per share compared with 29 cents in the year-ago quarter, comfortably beating the Zacks Consensus Estimate by 3 cents. NETGEAR generated quarterly net revenues of $230.9 million, down 9.6% year over year. The top line, however, surpassed the consensus estimate of $225 million, and came in above the higher end of the company’s guided range of $215-$230 million. (Read more: NETGEAR Surpasses Q2 Earnings and Revenue Estimates)

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, CenturyLink (NYSE:CTL) was the biggest gainer with its share price increasing 5.1% while Qualcomm (NASDAQ:QCOM) was the biggest decliner with its stock down 3.7%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 32.1%, while CenturyLink was the sole decliner with its stock down 24.3%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average gain of 0.1% while the S&P 500 has rallied 9.1%.

What’s Next in the Telecom Space?

In addition to the earnings releases of some of the leading companies within the industry, all eyes will remain glued to how the government handles the issue of trade licenses for business deals with Huawei and its cascading effect on the industry.

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