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3 Telecom Stocks Likely to Surpass Q4 Earnings Estimates

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·9 min read
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In the fourth quarter of 2021, telecom stocks witnessed a gradual revival as business operations returned to the pre-pandemic levels. Despite supply chain woes related to continued chip shortage and spread of the Omicron variant of the coronavirus, the industry seemed to benefit from higher demand for scalable infrastructure for seamless connectivity amid a wide proliferation of IoT devices. A steady pace of 5G deployment and investments by leading carriers to increase their fiber footprint in rural areas to bridge the digital divide seemed to infuse confidence in the sector. Telecom firms also stepped up efforts to provide the vital lifeline to countless humans as the work-from-home trend gained traction.

The passage of the $1.2 trillion infrastructure bill in the House further buoyed the growth momentum. The multi-billion infrastructure bill includes a $65 billion provision to significantly expand broadband access to Americans as the administration aims to fortify its technological prowess to thwart the dominance of countries like China. The plan envisions reaching the underserved areas of the country and prioritizing support for broadband networks affiliated with local governments, nonprofit organizations and cooperatives to encourage strong competition with privately-owned companies. The plan has also earmarked funds for the tribal areas that lack access to high-speed Internet. It is likely to lower the prices for Internet services by requiring funding recipients to offer a low-cost affordable plan and encourage price transparency.

Factors at Play

5G Momentum Picks Up Steam: The 5G momentum picked up steam during the fourth quarter as more 5G handsets models were launched and carriers began to fast-track the deployment of 5G network across the country. In a concerted effort to thwart the increased 5G dominance of South Korea and China and bring the United States at the forefront of the 5G race, the FCC auctioned some of the airwaves in the 3.45 GHz auction for $21.8 billion that makes available 100 megahertz of mid-band spectrum for commercial use across the country for fixed or mobile uses. The winning bidders reportedly won 4,041 of the 4,060 available generic blocks on offer. The mid-band offers significant bandwidth with better propagation characteristics than mmWave, which has a short range and requires a high density of sites to achieve coverage. Consequently, it is deemed a prized asset for carriers that lack considerable mid-band spectrum holdings.

Federal Support: The FCC has adopted a new set of rules for foreign companies seeking to operate in the U.S. telecom market with a certain level of foreign investment or control. The mandate requires companies with at least 5% foreign ownership interest to submit extensive personally identifiable information for all non-U.S. persons with access to submarine cable facilities when applying for FCC licenses. President Biden also continued his hard stance against Beijing and signed the Secure Equipment Act that empowers the FCC to prevent the use of any telecommunications equipment manufactured by China-backed entities in the domestic markets. The bill extended the purview of FCC control to private companies. It would not only deter it from approving new requests but also revoke the prior equipment approval on perceived risks to national security interests. This follows an earlier directive to bar China Telecom from operating in the United States over national security concerns and a consequent annulment of a petition in a U.S. appeals court by the Beijing firm to block the decision to prevent irreparable loss to businesses and customer relationships.

Administrative Guardrails: The FCC discarded the petition of ZTE to reconsider the decision of designating it as a threat to national security interests and affirmed it as a potential risk to the U.S. communications network. The FCC-sponsored reimbursement program for ‘rip and replace’ of telecommunications gear manufactured by Huawei and ZTE officially kickstarted during the quarter. Removing the low-cost gear is likely to affect some rural network service, hurt profitability and risk sustainability as most local operators are forced to reshuffle their existing infrastructure without focusing on infrastructure upgrades for 5G deployment to help realize the President’s broadband objective. Although the FCC is slated to initiate a $1.9 billion program to reimburse the carriers by seeking applications from Oct 29 through Jan 14, 2022, certain industry experts remain circumspect regarding the implementation of the infrastructure bill and whether it will effectively fulfill the President’s vision of “build back better” program.

How to Pick?

A multitude of telecom stocks is likely to report earnings in the coming weeks. A solid earnings performance of the telecom sector could sow the seeds for future investments and R&D in network and 5G-enabled devices for superior 5G capabilities, as the industry seeks to capitalize on the inherent growth potential.

Amid a diverse range of companies, choosing the right stock for your portfolio could appear to be a colossal task. While it is impossible to be sure about such outperformers, our proprietary methodology makes the process fairly simple.

Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), chances of a positive earnings surprise are as huge as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is an important ingredient of our proven model, which along with a top Zacks Rank creates the perfect combination to determine stocks with the best chances to pull off a positive surprise in the upcoming earnings announcements. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Potential Winners

Arista Networks, Inc. ANET: Santa Clara, CA-based Arista provides cloud networking solutions for data centers and cloud computing environments. The company benefits from strong momentum and diversification across its top verticals and product lines. Arista has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. It is well-poised for growth in data-driven cloud networking business with proactive platforms and predictive operations. In addition to high capacity and easy availability, its cloud networking solutions promise predictable performance along with programmability that enables integration with third-party applications for network management, automation and orchestration. The company’s product portfolio facilitates the implementation of high-performance, highly scalable and appropriate solutions for every environment.

The company holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. It is increasingly gaining market traction in 200-and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista currently has a Zacks Rank #3 and an Earnings ESP of +0.95%. The company is scheduled to report results after the closing bell on Feb 14.

Arista Networks, Inc. Price and EPS Surprise

Arista Networks, Inc. Price and EPS Surprise
Arista Networks, Inc. Price and EPS Surprise

Arista Networks, Inc. price-eps-surprise | Arista Networks, Inc. Quote

T-Mobile US, Inc. TMUS: Headquartered in Bellevue, WA, T-Mobile is a national wireless service provider, offering mobile voice, messaging and data services in the postpaid, prepaid and wholesale markets. While other wireless players focus on the millimeter wave, T-Mobile continues to execute a multi-band spectrum strategy of using low-band Extended Range to cover the country and Ultra Capacity to bring fast 5G speeds to the maximum number of people. The company’s network has 14 times more capacity after its merger with Sprint than on a standalone basis, enabling it to leapfrog the competition in network capability and customer experience. T-Mobile’s mid-band 5G network is expected to cover 300 million people by the end of 2023. The company currently offers 5G fixed broadband services to 500,000 residential customers and plans to increase this tally to 7-8 million by 2025.

Following its merger with Sprint, T-Mobile boasts an unrivaled bouquet of high- and low-band spectrum for a faster nationwide 5G rollout, undeniably disrupting the competitive landscape of the U.S. telecom market. The company is further strengthening its mid-band coverage by adding more towers and spectrum in places that already have 5G network connectivity and aims to bring superfast speed to urban areas and rural locations. The company is slated to report results on Feb 2, after market close. The stock currently has an Earnings ESP of +55.93% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

TMobile US, Inc. Price and EPS Surprise

TMobile US, Inc. Price and EPS Surprise
TMobile US, Inc. Price and EPS Surprise

TMobile US, Inc. price-eps-surprise | TMobile US, Inc. Quote

BCE Inc. BCE: Operating as Canada’s largest communications service provider, BCE serves as the holding company for Bell Canada. The company provides local and long-distance phone service to approximately 70% of the Canadian population, primarily in Ontario and Quebec. BCE's wireless segment is expected to benefit from postpaid business as it continues to enjoy solid subscriber additions and higher revenue contributions from prepaid services. Significant investments in network coverage, customer retention, lucrative data plans and the launch of new handsets are likely to drive subscriber base expansion. It is witnessing operating profitability growth across its wireless, wireline and media segments.

As part of its fiber-to-the-premises expansion into the populous regions surrounding Toronto, Bell is bringing direct fiber links to more than 200,000 residential and business locations in the City of Hamilton. This Zacks Rank #3 stock has an Earnings ESP of +1.48%. The company is scheduled to report results on Feb 3, after the closing bell.

BCE, Inc. Price and EPS Surprise

BCE, Inc. Price and EPS Surprise
BCE, Inc. Price and EPS Surprise

BCE, Inc. price-eps-surprise | BCE, Inc. Quote

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