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Will AT&T (T) Beat Q2 Earnings on Healthy Inorganic Growth?

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Will AT&T (T) Beat Q2 Earnings on Healthy Inorganic Growth?

A holistic growth model with core focus and opportune acquisitions will likely drive solid performance for AT&T (T) in second-quarter 2018.

AT&T Inc. T is scheduled to report second-quarter 2018 results after the closing bell on Jul 24. In the last reported quarter, adjusted earnings missed the Zacks Consensus Estimate by a couple of cents. Over the trailing four quarters, it delivered a positive average earnings surprise of 5.8%, beating estimates twice.

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

Factors to Consider

During the quarter, AT&T received the green signal from the court to go ahead with its proposed deal to buy the mass media and entertainment conglomerate, Time Warner, for $85 billion. With assets like HBO, CNN and TNT, the deal will allow the power packed combination of AT&T’s data and Time Warner’s content to create new kinds of online videos and sell targeted advertisements to counter Verizon Communications Inc.’s Yahoo and AOL businesses. Given the scale of both AT&T and Times Warner, the merger is likely to reshape the industry dynamics, creating a media behemoth.

In order to augment its foothold in the digital ad sales market, the company inked an agreement to acquire AppNexus, a technology firm that operates the world’s largest independent marketplace for digital advertising. With more than 34,000 publishers and 177,000 brands transacting in the marketplace, AppNexus allows advertisers to buy space across thousands of websites, targeting their desired audiences. It operates in both lines of businesses helping publishers manage ad space on their sites as well as ad agencies purchase various ads. The transaction is therefore expected to place AT&T deeper into the digital ad realm.

At the same time, AT&T is gearing up to launch the first standards-based mobile 5G services to consumers in multiple U.S. markets by the end of 2018. The company has been working hard since 2017 to lay the foundation for mobile 5G network and has completed network upgradation in 23 major cities. The company is conducting one of the nation's first fixed 5G trials using millimeter wave spectrum in South Bend, which is one of the four cities in the nation where AT&T is currently conducting the trials.

During the second quarter, AT&T ventured into the competitive video-gaming arena by collaborating with ESL — the largest esports powerhouse in the world. With the collaboration, AT&T has become the Official Telecommunications and Mobile Gaming Partner of ESL North America. AT&T will leverage its sports brand image to tap the huge revenue-generating potential of this emerging industry through brand promotions and on-site activations. This will help the company to actively engage with fans through superfast Wi-Fi connections and convenient charging stations, displaying the latest offerings through immersive experiences and demos.

It will also offer a perfect platform to demonstrate how AT&T intends to incorporate 5G technologies to take mobile esports and live gaming to the next level through an ultra-fast and low-latency 5G connection. All these endeavors will enable the company to stay relevant to a mobile-centric audience as well as to casual and professional gamers, who prefer to remain engaged with mobile gaming and competitive esports on-the-go.

With such a holistic growth model, AT&T is likely to record solid performance in the upcoming earnings release.

Earnings Whispers

Our proven model shows that AT&T is likely to beat earnings this quarter as it possesses the key components. 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. This is perfectly the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.77%. 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. Quote

Zacks Rank: AT&T has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
   
Other Stocks to Consider

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

Verizon Communications Inc. VZ is slated to release quarterly numbers on Jul 24. It has an Earnings ESP of +0.20% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here.

Windstream Holdings, Inc. WIN, with an Earnings ESP of +12.15% and a Zacks Rank #2, is slated to report results on Aug 9.

Cisco Systems, Inc. CSCO has an Earnings ESP of +0.60% and a Zacks Rank #2. The company is likely to release earnings on Aug 15.

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