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Telecom Stock Roundup: Motorola & Ubiquiti Surpass Earnings Estimates, & More

Supriyo Bose
·6 min read

After a brief surge, telecom stocks started to retract as uncertainties over recovery from the devastating coronavirus crisis rose. Fed Chairman Jerome Powell’s issuance of a grim warning about a prolonged recovery period and stagnant growth due to the virus outbreak sent shockwaves across markets, which until now appeared to have factored in the element of uncertainty regarding the extent of economic damage from the outbreak. The Fed also raised the pitch for more fiscal stimulus to tide over the crisis. This largely took investors by surprise as most have been pinning hopes on consumer resilience in the domestic market with the economies reopening gradually.

Notably, in the past week, President Trump extended till May 2021 the executive order signed last year to prevent U.S. firms from dealing with foreign communication equipment manufacturers that were deemed to be harmful to national security interests. Although the order was company and country specific, it effectively barred U.S. firms from either buying or selling any telecom equipment to firms like Huawei that are deemed to pose national security risks, virtually crippling operations. The directive invoked the International Emergency Economic Powers Act, which bestowed the President with the authority to regulate commerce in view of the national emergency.

The U.S. Department of Commerce is expected to extend the temporary license agreement with Huawei that is about to expire on May 15 to enable certain rural telecom carriers to deal with the company and continue using its cheap equipment until they were replaced with other reliable components. The move appears all the more pertinent due to the adverse economic impact from the virus outbreak. Even some Internet service providers have now called for an economic bailout for the losses due to non-payment or delayed payment of bills under FCC's "Keep Americans Connected Pledge". 

Meanwhile, the Department of Homeland Security is likely to advise the U.S. telecom industry on preventive measures to deter attacks on 5G cell towers, following sporadic incidents in Western Europe. The stray events were apparently fueled by COVID-19 misinformation that the technology spreads the pathogen causing the deadly virus.

In another notable development, Intel and Taiwan Semiconductor Manufacturing Co. are reportedly in talks with the Trump administration to set up manufacturing plants in the United States to prevent any supply-chain disruption in the future. The event gains precedence as Huawei reportedly achieved a breakthrough with a local mass-scale production of its chipset by Semiconductor Manufacturing International Corp. This is likely to enable it to reduce dependence on other U.S.-based chipset firms.

Regarding company-specific news, quarterly earnings, strategic deals and deployments primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     Despite coronavirus-induced adversities, Motorola Solutions, Inc. MSI reported solid first-quarter 2020 results, driven by diligent execution of operational plans. The company witnessed a healthy demand for video security products and services during the quarter and remains well poised to tide over the storm with a solid cash flow and balance sheet position.

Non-GAAP earnings in the quarter were $1.49 per share compared with $1.28 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 24 cents. Quarterly net sales remained flat year over year at $1,655 million as growth in the Americas was offset by a decline in the international business. The top line exceeded the Zacks Consensus Estimate of $1,633 million.
2.      Ubiquiti Inc. UI reported solid third-quarter fiscal 2020 results, with the top and bottom lines surpassing the Zacks Consensus Estimate and increasing year over year. Notably, the company registered record revenues and GAAP earnings per share.

Non-GAAP net income came in at $104.3 million or $1.61 per share compared with $88.9 million or $1.26 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 20 cents. Quarterly revenues increased 18.4% year over year to $337.4 million, backed by higher sales of enterprise technology products. The top line surpassed the consensus mark of $317 million.

3.      Verizon Communications Inc. VZ partnered with Sirius XM Holdings Inc. — a leading audio entertainment company — to deliver SiriusXM with 360L, the latter’s latest entertainment platform, to 10 Audi vehicles (2021 model) in the United States.

SiriusXM with 360L revolutionizes the SiriusXM in-car audio entertainment experience by combining satellite and streaming delivery to give listeners access to more than 200 channels, on-demand audio and better personalization. Verizon’s 4G LTE network powers SiriusXM with 360L’s streaming content by offering in-vehicle access to SiriusXM’s content in Audi models.

4.      Ericsson ERIC joined forces with Telia Norway — a leading Nordic communications service provider — to deploy the first 5G commercial network in the greater Oslo region.

Per the deal, Telia Norway will leverage Ericsson’s 5G NR hardware and software to deploy its avant-garde 5G network in Lillestrøm and parts of Groruddalen. Designed to offer seamless connectivity services, the partnership will enable both companies to enhance their existing consumer business and address value chains in the digitization of industries.

5.       In a concerted effort to maintain its dominant position in the long-haul transport network, Ciena Corporation CIEN recently inked a deal with a Sweden-based telecommunications giant — Telia Carrier — for the deployment of its C&L-Band photonic line system in the United States.

Per the partnership, Telia Carrier will leverage Ciena’s avant-garde 6500 Reconfigurable Line System (RLS) to provide seamless connectivity solutions across the United States and efficiently address the highest-capacity networking requirements while maximizing operational efficiencies.

Price Performance

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

In the past five trading days, T-Mobile has been the best performer with its stock appreciating 6.7%, while CenturyLink has been the biggest decliner with its stock decreasing 7.5%.

Over the past six months, T-Mobile has been the best performer with its stock appreciating 17.2%, while CenturyLink was the biggest decliner with its stock falling 62%.

Over the past six months, the Zacks Telecommunications Services industry declined 16.7%, while the S&P 500 recorded an average loss of 8.9%.

What’s Next in the Telecom Space?

In addition to product launches, deals and 5G deployments, all eyes will be glued to the remaining earnings releases and how the administration attempts to handle the overall situation in order to restore normalcy.

Zacks’ Single Best Pick to Double

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This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.

Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.

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Verizon Communications Inc. (VZ) : Free Stock Analysis Report
Ciena Corporation (CIEN) : Free Stock Analysis Report
Ericsson (ERIC) : Free Stock Analysis Report
Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
Ubiquiti Inc. (UI) : Free Stock Analysis Report
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