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Will Lower Communications Revenues Dent AT&T (T) Q2 Earnings?

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AT&T Inc. T is scheduled to report second-quarter 2021 results, before the opening bell, on Jul 22. In the second quarter, the company’s Communications segment is likely to have recorded lower revenues year over year owing to the adverse impacts of the coronavirus pandemic and continued infrastructure investments for 5G deployment across the country.

Factors at Play

The Communications segment has three business units — Mobility, Entertainment Group and Business Wireline.

In the second quarter, AT&T continued to expand its 5G network infrastructure and launched 5G+ service in select areas. The company’s 5G network currently covers nearly 250 million users in 14,000 cities across the country, and its 5G+ network is available in 38 cities. AT&T is benefiting from lower levels of wireless churn due to access to 5G on its unlimited wireless plans for consumers and businesses and growing adoption of Unlimited Elite wireless plans. Such initiatives might get reflected in the upcoming results.

During the to-be-reported quarter, AT&T collaborated with Cisco Systems, Inc. in order to better adapt to the evolving communication requirements of the hybrid workforce and embrace the ‘new normal’. The deal enabled AT&T to leverage Cisco’s Unified Communications Manager Cloud to expand and customize the broader Webex portfolio with its own gamut of services such as 5G, SD WAN, mobility, fiber and IP infrastructure to better serve various ecosystems. In addition, it partnered with Microsoft to move its 5G mobile network to the latter’s cloud. This is likely to help AT&T enhance its productivity and deliver large-scale network services by using Microsoft’s hybrid infrastructure, thereby decreasing engineering and development costs.

In the second quarter, AT&T secured a $725 million, 12-year Task Order from the U.S. Department of Veterans Affairs to provide an advanced data communications platform that will help boost their mission capabilities. The company will help modernize the federal agency’s IP-based data network for a robust technology infrastructure that will enable quick cloud adoption. It also inked a contract to provide SD-WAN and WAN solution that will help modernize the network of French multinational tyre manufacturing company, Michelin. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

During the quarter, AT&T extended its FirstNet coverage in the country with the addition of purpose-built cell site and other network investments at various places. The FirstNet network presently covers more than 2.71 million square miles supporting in excess of 2 million connections nationwide. These facilities have enabled the company to expand public communication capabilities with dedicated broadband network for any emergency support.

However, continued infrastructure investments for extensive fiber connectivity and the deployment of a standards-based nationwide mobile 5G network are likely to have affected the bottom line. The company’s wireline division is struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. AT&T is facing a steady decline in linear TV subscribers and legacy services. High-Speed Internet revenues are also contracting due to legacy Digital Subscriber Line decline, simplified pricing and bundle discount. Adverse foreign currency translations, TV content-cost pressure, high programming costs and new video platform expenses are also likely to have contracted the bottom line.

Overall Expectations

The Zacks Consensus Estimate for revenues from Communications is pegged at $27,382 million, indicating a decline from $33,592 million reported in the year-ago quarter. Operating income is pegged at $7,320 million, implying a decline from $8,112 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $11,378 million, suggesting a fall from $12,751 million.

The Zacks Consensus Estimate for total revenues of the company stands at $42,649 million, indicating an improvement from $40,950 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 78 cents per share. It had reported 83 cents in the year-earlier quarter.

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.83% with the former pegged at 79 cents and the latter at 78. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

AT&T Inc. Price and EPS Surprise
AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Nokia Corporation NOK is set to release quarterly numbers on Jul 30. It has an Earnings ESP of +9.09% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Verizon Communications Inc. VZ is +1.63% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Jul 21.

The Earnings ESP for T-Mobile US Inc. TMUS is +13.75% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Aug 5.

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AT&T Inc. (T) : Free Stock Analysis Report

Verizon Communications Inc. (VZ) : Free Stock Analysis Report

Nokia Corporation (NOK) : Free Stock Analysis Report

TMobile US, Inc. (TMUS) : Free Stock Analysis Report

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