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Telecom Stock Roundup: CenturyLink, Arista Trump Earnings Estimates & More

Supriyo Bose

In the past five trading days, telecom stocks witnessed a gradual uptrend on optimism over a likely long-term solution to the trade war. The bilateral trade talks between the United States and China continued in Washington over the past week as both sides signaled intentions to resolve their differences. The overall equity markets seemed to ride on the positive vibes, and the stock market euphoria propelled the telecom stocks to newer heights.

After President Trump proposed to extend the Mar 1 deadline to reach a sweeping agreement to end the trade skirmishes, Chinese president Xi Jinping instilled faith in investors with his willingness to strike a full-scale accord. He also gave hints to walk the extra mile when he met U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin to seek a mutually agreeable solution to the trade dispute. A probable meeting between the top leaders of both the countries is also in the cards in the near future.

Although no apparent breakthrough has yet been made, the Trump administration maintained that the talks have been quite fruitful. Higher level meetings are scheduled to continue through the end of the week as Mnuchin and Lighthizer meet with Chinese vice premier Liu He to iron out the differences. Although specific discussions relating to restrictions for technology products have remained muted throughout, the industry cheered the positive developments.

Meanwhile, Chinese government officials and Huawei founder have upped the ante against the alleged unfair treatment meted to its CFO Meng Wanzhou. As the trial date for her probable extradition from Canada to the United Sates is drawing close, the argument that her case is politically motivated is gaining ground in China. On the other hand, the United States is moving closer to give the final touches to an executive order that could offer sweeping powers to the Commerce Department to review imported products by domestic firms and ban the outright sale of such equipment on grounds of national security interests. Industry observers feel that it could ultimately serve as a knell to some Chinese telecom firms and make it virtually impossible for them to operate in the U.S. shores if the bill is passed by President Trump. However, the proposed executive order is facing stiff opposition from rural telecom service providers that use low-cost Chinese equipment like that of Huawei.

Regarding company-specific news, earnings primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.    CenturyLink, Inc. CTL reported mixed fourth-quarter 2018 financial results wherein the top line missed the Zacks Consensus Estimate but the bottom line surpassed the same. Notably, both the figures increased on a year-over-year basis.

Net income (excluding integration-related expenses and special items) came in at $394 million or 37 cents per share compared with $161 million or 18 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 1 cent. Quarterly operating revenues increased 8.5% year over year to $5,778 million on the back of incremental revenues from integration of Level 3. The top line, however, lagged the consensus estimate of $5,797 million. (Read more: CenturyLink's Q4 Earnings Beat on Higher Revenues)

2.    Arista Networks, Inc. ANET reported solid fourth-quarter 2018 financial results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year.

Quarterly non-GAAP net income came in at $182.2 million or $2.25 per share compared with $137.3 million or $1.71 per share in the year-ago quarter. The bottom line beat the consensus estimate by 21 cents. Quarterly total revenues increased 27.3% year over year to $595.7 million and was above the company’s guidance of $582-$594 million, driven by healthy overall demand with strength across the business, particularly in the cloud titans vertical. The top line surpassed the Zacks Consensus Estimate of $589 million. (Read more: Arista Q4 Earnings Beat on Strong Revenue Growth)

3.    Telefônica Brasil S.A. VIV reported mixed fourth-quarter 2018 financial results, wherein the bottom line declined year over year but the top line increased.

Net income for the fourth quarter decreased 2% year over year to R$1,486.7 million ($390.2 million). For full-year 2018, net income increased 93.7% to R$8,928.3 million. Quarterly pro forma net income was R$1,471.9 million ($386.4 million), down 3%. Fourth-quarter net operating revenues improved 0.5% year over year to R$11,085.5 million ($2,909.9 million), primarily driven by the healthy performance of the postpaid, handsets and ultra-broadband revenues. (Read more: Telefonica Brasil Q4 Earnings Down, Revenues Grow Y/Y)

4.    Windstream Holdings, Inc. WIN has deferred the release of fourth quarter and full-year 2018 results due to the adverse judgement against one of its subsidiaries.

In his ruling, a federal judge in the Southern District of New York ruled against Windstream Services, LLC. The case, filed by Aurelius Capital Management and U.S. Bank National Association, pertains to the validity of the 2015 spinoff of certain telecommunications network assets into a real estate investment trust and its agreements with bondholders. The company has decided to pursue all available options, including appeal against the order, to safeguard its interests.

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and during the past six months.



In the past five trading days, AT&T was the biggest gainer with its share price increasing 3.3% while SBA Communications Corporation was the sole decliner with its shares down 0.7%.

Over the past six months, SBA Communications Corporation has been the best performer with its stock appreciating 15.8% while Qualcomm declined the most with its shares falling 27.4%.

Over the past six months, the Zacks Telecommunications Services industry has declined 1.8% while the S&P 500 fell 2.9%.



What’s Next in the Telecom Space?

In addition to other earnings releases, product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China continue their negotiations for a long-term solution to the trade war.

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