Will AT&T (T) Disappoint Investors This Earnings Season?

AT&T Inc. (NYSE:T) – a U.S. telecom giant – is scheduled to report first-quarter 2017 financial numbers on Apr 25, after market close.

AT&T’s bottom line matched the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 1.09%. The company’s earnings surpassed the Zacks Consensus Estimate only in the year-ago quarter.

Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

AT&T continues to operate in a saturated wireless market where spectrum crunch is a big issue. Moreover, loss in access lines, stringent regulatory measures and union issues are major headwinds. The company has also been facing intense competition, compelling it to lower the price of its services due to lack of demand. It will be interesting to watch whether AT&T’s upcoming results can tide over these challenges. We believe these factors have led to the company’s declining price performance. Over the past three months, shares of AT&T declined 3.9% compared with the Zacks categorized Wireless National industry’s loss of 4.2%.

AT&T’s trial to resolve DIRECTV’s deceptive ad suit and antitrust lawsuit bode well.

On the flip side, we appreciate AT&T’s efforts to reward its shareholders witha quarterly dividend of 49 cents per share on the company's common shares, payable on May 1, 2017, to stockholders of record at the closure of business on Apr 10, 2017.

AT&T’s over the top (OTT) online streaming service ‘DirecTV Now’, launched on Nov 28, 2016 is doing considerably well. Post DIRECTV acquisition, revenues from the Entertainment groupsegment grossed $13,206 million, up 1.6% year over year in the last reported fourth quarter of 2016. We expect to witness such impressive results in the to-be-reported quarter also.

AT&T’s 5G trials in 2017, plans to launch 3GPP Mobile 5G Services in late 2018 and deploy 28GHz and 39GHz spectrum bands, using Qualcomm Inc.’s (NASDAQ:QCOM) prototype devices and Ericsson’s (NASDAQ:ERIC) base station solutions bode well for its 5G strategy. We expect these announcements to have helped AT&T witness further subscriber addition in the first quarter.

Unlimited data plans from AT&T have already made a place in the wireless industry. AT&T’s continuous efforts to strengthen its foothold in the Internet of Things (IoT) space by inking different deals looks good.

Earnings Whispers

Our proven model does not conclusively show that AT&T is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP : AT&T has an Earnings ESP of -1.35%. This is because the Most Accurate estimate stands at 73 cents while the Zacks Consensus Estimate is pegged at 74 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank : AT&T has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Pick

T-Mobile US Inc. (NYSE:T) from the Zacks categorized broader Computer and Technology sector has the right combination of elements to post an earnings beat in its first-quarter 2017 results on Apr 24. T-Mobile US has an Earnings ESP of +2.86% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s earnings surpassed the Zacks Consensus Estimate in all the previous four quarters, with an average beat of 75.66%.

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