Telecom Stock Roundup: Verizon, AT&T Trump Earnings Estimates & More

In the past five trading days, telecom stocks mostly trended down owing to the continued market uncertainty triggered by trade-related headwinds in the aftermath of China-U.S. row over Huawei. Although the end of the federal government shutdown after a record 35 days seemed to ease the concerns related to the availability of funds for the speedy deployment of 5G technologies, bilateral trade woes with China continued to haunt the sector. This even overshadowed the earnings season, which was quite a dampener compared with the past few quarters.

The U.S. Justice Department has charged two units of China’s Huawei Technologies Co Ltd with a 10-count indictment, accusing them of stealing robotic technology from T-Mobile to test smartphones’ durability. The court has further arraigned Huawei Device Co Ltd and Huawei Device USA Inc on Feb 28 to stand trial for the charges. The latest indictment traces its roots to a civil suit filed by T-Mobile in Seattle District Court in 2014, in which it accused Huawei of stealing trade secrets at the behest of R&D team based in China. Although the case was settled with a $4.8 million compensation award to T-Mobile in 2017, it seems that the Trump administration will leave no stone unturned to ban China’s Huawei and ZTE (HK:0763) from the country.

Additionally, the federal prosecutors have also issued a 13-point indictment against Huawei for allegedly deceiving international banks into clearing transactions (worth millions of dollars) with Iran despite economic sanctions. However, no arraignment date has been put forth for it. Meanwhile, the Trump administration continued to put pressure on China by formally seeking the extradition of Huawei CFO Meng Wanzhou from Canada. Notably, Canada now has time till Mar 1 to assess the request.

To make matters worse, the government is supposedly preparing an executive order that could give sweeping powers to the Commerce Department to review imported products by domestic firms and ban the outright sale of such equipment on grounds of national security interests. Industry observers feel that it could ultimately serve as a knell to some Chinese telecom firms and make it virtually impossible for them to operate in the U.S. shores if the bill is passed by the President.

Despite the conundrums, both the United States and China have continued with their trade negotiations to seek a long-term solution to the trade war. The bilateral trade talks between U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu have failed to come up with any notable solution after the first round. It remains to be seen if at all a breakthrough could be achieved in the subsequent round of talks.

Regarding company-specific news, earnings took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1. Verizon Communications Inc. (NYSE:VZ) continued its solid performance in fourth-quarter 2018, primarily led by the wireless business. The company recorded modest top-line growth led by service revenues and remains well poised to benefit from the impending 5G boom.

GAAP earnings for the reported quarter were $2,065 million or 47 cents per share compared with $18,783 million or $4.57 per share in the year-ago quarter. The sharp year-over-year decrease in GAAP earnings was primarily attributable to goodwill impairment charges related to Oath, acquisition and integration charges and severance and annual mark-to-market for pension and OPEB (other post-employment benefits) expenses. Excluding non-recurring items, adjusted earnings were $1.12 per share compared with 86 cents in the year-earlier quarter. Also, the bottom line beat the Zacks Consensus Estimate of $1.09. (Read more: Verizon Beats on Q4 Earnings, Misses Revenue Estimates)

2. AT&T Inc. (NYSE:T) reported strong fourth-quarter 2018 results driven by solid domestic wireless business and accretive WarnerMedia contribution. The company expects to continue this healthy growth momentum in 2019 while focusing on reducing its huge debt burden.

On a GAAP basis, AT&T reported net income of $4,858 million or 66 cents per share compared with $19,037 million or $3.08 per share in the year-ago quarter. The sharp decline despite top-line growth was primarily attributable to favorable impact from U.S. corporate tax reform in the year-earlier quarter. Adjusted earnings for the quarter increased to 86 cents per share from 78 cents in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimate by a penny. (Read more: AT&T Trumps Q4 Earnings Estimates, Falters on Revenues)

3. Harris Corporation (NYSE:HRS) delivered solid second-quarter fiscal 2019 results with record earnings and high single digit revenue growth driven by strong margin expansion across all the segments. Moreover, both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.

On a GAAP basis, net income for the reported quarter increased 72% year over year to $225 million primarily due to top-line growth, diligent execution of operational plans and a lower share count. GAAP earnings from continuing operations increased to $1.88 per share from $1.08 in the year-ago quarter. Adjusted earnings for the reported quarter improved 19% year over year to $1.96 per share, beating the Zacks Consensus Estimate of $1.91. (Read more: Harris Trumps Q2 Earnings & Revenue Estimates, Ups View)

4. Juniper Networks, Inc. (NYSE:JNPR) reported mixed fourth-quarter 2018 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The computer network equipment maker’s financial performance was mainly driven by sales growth in Enterprise business, decrease in total cost of revenues and income tax benefit.

On a GAAP basis, net income increased to $192.2 million or 55 cents per share from net loss of $148.1 million or loss of 40 cents per share in the year-earlier quarter, primarily due to lower operating costs and income tax benefit. Non-GAAP net income for the reported quarter was $205.7 million or 59 cents per share compared with $199.4 million or 53 cents per share a year ago. The year-over-year increase was primarily attributable to healthy gross margin, continued cost control and a lower tax rate. The bottom line beat the Zacks Consensus Estimate by 2 cents. (Read more: Juniper Q4 Earnings Beat Estimates, Revenues Lag)

5. Corning Incorporated (NYSE:GLW) reported solid fourth-quarter 2018 results driven by sales growth in each of its businesses led by investment in innovation and capacity expansions.

On a GAAP basis, net income for the reported quarter improved significantly to $292 million or 32 cents per share from net loss of $1,412 million or loss of $1.66 per share in the year-ago quarter, primarily due to top-line growth and lower taxes. Quarterly core earnings came in at $539 million or 59 cents per share compared with $455 million or 46 cents per share in the year-earlier quarter. Adjusted earnings beat the Zacks Consensus Estimate by 2 cents. (Read more: Corning Q4 Earnings & Revenues Beat Estimates, Up Y/Y)

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, Harris was the biggest gainer with its share price increasing 8.3% while Juniper declined the most with its stock losing 8.4%.

Over the past six months, Sprint Corporation has been the best performer with its stock appreciating 10.9% while Qualcomm (NASDAQ:QCOM) declined the most with its shares falling 28.3%.

Over the past six months, the Zacks Telecommunications Services industry has declined 0.5% while the S&P 500 fell 6.3%.

What’s Next in the Telecom Space?

In addition to other earnings releases, product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China continue their negotiations for a long-term solution to the trade war amid the backdrop of Meng’s extradition and criminal investigation process.

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