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Will Lower Revenues Affect AT&T's (T) Earnings This Season?

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Zacks Equity Research
·5 min read
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AT&T Inc. T is scheduled to report fourth-quarter 2020 results, before the opening bell, on Jan 27. In the last reported quarter, adjusted earnings marginally missed the Zacks Consensus Estimate by a penny. In the fourth quarter, the company is likely to have recorded lower revenues year over year due to the adverse impact from the coronavirus pandemic, foreign currency headwinds and continued infrastructure investments for 5G deployment across the country.

Factors at Play

In the fourth quarter, AT&T expanded its 5G network infrastructure and launched 5G+ service in select parts of Downtown Milwaukee, among others, taking the tally to 38 cities across the country, serving more than 225 million people. 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. The company continues to invest in its wireless and wireline networks to expand coverage and improve connectivity. These initiatives are likely to get reflected in the upcoming results.

During the to-be-reported quarter, AT&T collaborated with industry partner Ericsson to offer private cellular networks that help enterprises meet their specific connectivity requirements. Driven by an end-to-end, self-contained network for greater flexibility and operational control, the private network delivers an optimized network infrastructure for mission-critical operations and mitigates risks relating to routing of data over public networks. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

During the quarter, the U.S. Army selected FirstNet to support firefighters, law enforcement and security personnel at 72 Army installations across the country and Puerto Rico. Per the deal, AT&T will provide almost 3,200 lines of FirstNet services with 3,000 FirstNet-capable devices and 700 signal boosters to help improve indoor connectivity. The company will also offer staging and kitting of devices, including preloading multiple FirstNet apps on the devices. This is likely to have been accretive to earnings in the fourth quarter.

With a customer-centric business model, AT&T is witnessing healthy momentum in its postpaid wireless business with a lower churn rate and increased adoption of higher-tier unlimited plans. The company continues to focus on seamless broadband connectivity for unhindered access to streaming content from HBO Max with healthy investments in 5G and fiber-optic infrastructure. The company is witnessing a healthy traction in HBO Max with a steady increase in subscriber base buoyed by the Christmas day release of “Wonder Woman 1984”.

However, adverse foreign currency translations, evolving market conditions in the aftermath of the deadly virus outbreak and continued investments for 5G deployments are likely to have led to soft margins. AT&T has limited visibility into the extent of the impact of COVID-19. Moreover, waiving of wireless voice and data overage fees for all customers and expanded eligibility for low-income Internet programs are likely to have drained the exchequer.

The Zacks Consensus Estimate for total revenues of the company stands at $44,547 million, indicating a 4.9% decline from $46,821 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 73 cents per share. It had reported 89 cents in the year-earlier quarter.

Key Developments in Q4

During the quarter, AT&T inked a deal to sell its Crunchyroll anime business to Sony’s Funimation Global Group for $1.175 billion in cash in order to improve its liquidity position and reduce the burgeoning debt burden. The move is likely to de-risk its capital structure as the company prepares to navigate through the challenging macroeconomic environment.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the fourth 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 not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.40%. 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 #4 (Sell).

Stocks to Consider

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

TMobile US, Inc. TMUS is set to release quarterly numbers on Feb 4. It has an Earnings ESP of +21.54% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Sensata Technologies Holding plc ST is +2.78% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Feb 2.

The Earnings ESP for Knowles Corporation KN is +5.56% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Feb 4.

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