Telecom Stock Roundup: US-China Trade Woes Ease, Net Neutrality Raises Concern

Over the last five trading days, though telecom stocks initially witnessed a steep rise as U.S.-China trade concerns abated, concerns over the implications of Senate’s approval to retain net neutrality played spoilsport.

Last week, President Trump made a sudden turnabout by acknowledging in a Twitter post that he was working with the Chinese President Xi Jinping to give ZTE (HK:0763) “a way to get back into business, fast”, after its operations crippled following a seven-year ban on sale of various components for illegally shipping goods to Iran. Industry experts believed that the strategic move by one of the most vocal supporters of national security and job protectionism was probably aimed at gaining much in return as various U.S. firms depended on China for their survival. They opined that ZTE was perhaps used as a pawn to seek favorable trade concessions like annulment of proposed tariffs on American agricultural exports and free access to the Chinese markets.

As concerns across the global borders subsided, domestic issues came to the forefront when the U.S. Senate voted in favor of reversing the FCC decision in December to repeal landmark 2015 net neutrality rules by a margin of 52 to 47. This offered a level playing field for all Internet providers to ensure free and open Internet to all users and provide equal access to Web content by barring broadband service providers from favoring any particular content. However, uncertainty remains over whether the U.S. House of Representatives will at all vote on the issue as the White House is reportedly opposed to repealing the December FCC order.

Regarding company-specific news, earnings of some telecom companies along with push for increased coverage for 5G technology topped the charts. The industry’s earnings in general were on strong footing backed by healthy growth dynamics thanks to the existing secular trends in cloud computing, artificial intelligence and Big Data.

Recap of the Week’s Most Important Stories

1. CenturyLink, Inc. (NYSE:CTL) reported mixed results for first-quarter 2018, the first full quarter of operations following the acquisition of Level 3. The company’s adjusted earnings were 25 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 15 cents.

Total operating revenues increased 41% year over year to $5,945 million, due to incremental revenues from Level 3. The top line, however, missed the Zacks Consensus Estimate of $5,963 million. (Read more: CenturyLink Q1 Earnings Top Estimates, Revenues Miss)

2. TELUS Corporation (NYSE:TU) reported healthy results for the first quarter of 2018, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate.

Adjusted earnings per share improved 2.8% year over year to CAD 0.73 (60 cents), primarily driven by solid growth in revenues in both operating segments. The bottom line surpassed the Zacks Consensus Estimate of 59 cents. Quarterly consolidated revenues increased 6% year over year to CAD 3,377 million ($2,672 million), beating the Zacks Consensus Estimate of $2,624 million. The year-over-year increase reflected strong customer growth including 76,000 new postpaid wireless, Internet and TV customer additions. (Read more: TELUS Beats on Q1 Earnings & Revenues, Updates View)

3. Ubiquiti Networks, Inc. (NASDAQ:UBNT) reported solid third-quarter fiscal 2018 results with year-over-year increase in earnings and revenues driven by healthy growth dynamics. Adjusted earnings came in at 98 cents per share, which beat the Zacks Consensus Estimate of 80 cents by 22.5%. The bottom line jumped 25.6% from year-ago figure of 78 cents. The year-over-year improvement can primarily be attributable to impressive growth in revenues generated by its enterprise technology during the quarter.

Ubiquiti reported revenues of $250.4 million, which lies within the company’s projected range of $245-$260 million. The top line grew 14.6% on a year-over-year basis. Increase in the number of installations of their service providing technology as well as the number of active users on the mobile application has proved conducive to top-line growth. (Read more: Ubiquiti Beats on Q3 Earnings, Reiterates Guidance)

4. In a dramatic turn of events, regulators of China have reportedly restarted the review process for the proposed merger of Qualcomm Incorporated (NASDAQ:QCOM) with NXP Semiconductors N.V. that was long shelved. The strategic move is expected to ease the trade relationship between the United States and China that seemed to be on the boil due to various restrictions and counter restrictions imposed on each other.

The transaction, when complete, will position Qualcomm as a strong player in the next-generation mobile chipset segment with a potential market size of $138 billion by 2020. (Read more: Qualcomm-NXP Merger Back on Track After Trump's ZTE Push)

5. Sprint Corporation (NYSE:S) recently announced that three more major markets — New York City, Phoenix, and Kansas City — will experience the nation’s first 5G wireless network in the first half of 2019. In February this year, the leading communication services company had listed Atlanta, Chicago, Dallas, Houston, Los Angeles, and Washington, DC, in its 5G network. It is expected to add more cities to the list soon.

Sprint has been continuously emphasizing on improving and upgrading its network and retaining customers. (Read more: Sprint Adds New York, Phoenix and Kansas to 5G List)

Price Performance

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

In the last five trading days, Qualcomm was the major gainer with its share price rising 6.2% while Sprint was the major decliner, with its stock losing 2.2%.

Over the last six months, Motorola Solutions, Inc. (NYSE:MSI) was the best performer with its stock appreciating 14% while Sprint was the major decliner with its shares falling 22.5%.

Over the last six months, the Zacks Telecommunications Services industry has underperformed the benchmark S&P 500 index with an average decline of 4.6% against a gain of 5.4% for the latter.

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