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Telecom Stock Roundup: Qualcomm, Sprint Trump Earnings Estimates & More

Supriyo Bose

In the past five trading days, telecom stocks witnessed a steep plunge owing to the continued market uncertainty triggered by trade-related headwinds in the aftermath of U.S.-China row over Huawei. To add to the woes, there seemed to be no major headway in the recent bilateral talks between U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu. This even overshadowed the peak earnings season, wherein leading technology firms reported quarterly results, with overall performance being quite a dampener compared with the past few quarters.

The high-level trade negotiations between the two nations took place on the U.S. shores to end the trade war that is apparently on pause till Mar 1. The Chinese trade delegation led by Liu also had a meeting with President Trump. Although no significant breakthrough was made to ease the trade impasse, a White House statement revealed that China had agreed to purchase 5 million metric tons of U.S. soybeans. The Trump administration views this as a major positive and a goodwill gesture to pave the path for future such trade concessions.

The next round of trade negotiations is slated to be held next week with a team of U.S. delegates headed by Treasury Secretary Steven Mnuchin travelling to China. Specific discussions relating to restrictions for technology products were muted and the industry awaits further clarity on the cusp of 5G revolution. Meanwhile, the Trump administration continued to put pressure on China by seeking the extradition of Huawei CFO Meng Wanzhou from Canada. Notably, Canada now has time till Mar 1 to assess the request.    

The government is also supposedly preparing an executive order that could give 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 the President.

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

Recap of the Week’s Most Important Stories

1.    Qualcomm Incorporated QCOM reported mixed first-quarter fiscal 2019 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The chip maker’s financial performance was driven by strength in its semiconductor business owing to strong product leadership and operating expense management.

Quarterly non-GAAP net income came in at $1,464 million or $1.20 per share compared with $1,438 million or 96 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 12 cents. Quarterly non-GAAP revenues came in at $4,815 million compared with $6,005 million in the year-ago quarter, missing the Zacks Consensus Estimate of $4,885 million. (Read more: Qualcomm Q1 Earnings Beat Estimates, Revenues Miss)

2.    Sprint Corporation S reported mixed third-quarter fiscal 2018 financial results, wherein the top line surpassed the Zacks Consensus Estimate while the bottom line missed the same. The company reported 12th consecutive quarter of operating income growth on a year-over-year basis and the highest fiscal third quarter adjusted EBITDA in 12 years.

Quarterly net loss came in at $141 million or loss of 3 cents per share against a net income of $7,162 million or $1.76 per share in the year-ago quarter. The sharp decline in earnings was primarily attributable to higher operating expenses in the reported quarter and income tax benefit in the year-earlier quarter. The bottom line missed the Zacks Consensus Estimate of loss of 2 cents. Quarterly total net operating revenues increased to $8,601 million from $8,239 million in the year-ago quarter, driven by higher wireless revenues. The top line surpassed the Zacks Consensus Estimate of $8,403 million. (Read more: Sprint Misses Q3 Earnings Estimate Despite Higher Revenues)

3.    Nokia Corporation NOK reported better-than-expected fourth-quarter 2018 results, wherein both the bottom line and top line beat the Zacks Consensus Estimate.

Reported profit for the fourth quarter was €193 million ($220.2 million) or €0.03 (4 cents) per share against loss of €386 million or loss of €0.07 per share in the prior-year quarter, driven by lower income tax expenses and higher gross profit. Non-IFRS profit improved 2.7% year over year to €728 million ($830.6 million) or €0.13 (15 cents) per share, beating the Zacks Consensus Estimate by 1 cent. Quarterly non-IFRS net sales increased 3.1% to €6,872 million ($7,839 million), beating the Zacks Consensus Estimate of $7,613 million. (Read more: Nokia Q4 Earnings and Revenues Beat Estimates, Up Y/Y)

4.    Badger Meter, Inc. BMI reported relatively healthy fourth-quarter 2018 results with year-over-year increase in revenues and earnings on the back of solid growth dynamics. The company expects to continue this growth momentum in 2019 with leading technology offerings and a customer-focused strategy.

On a GAAP basis, net earnings for the fourth quarter were $11.2 million or 39 cents per share compared with $7.2 million or 25 cents per share in the year-ago quarter. The increase, despite higher cost of sales, was primarily due to higher revenues and lower provision for income tax. Adjusted net earnings increased 60% year over year to 40 cents per share, and beat the Zacks Consensus Estimate by a couple of cents. Quarterly net sales increased 8% to $104.4 million due to high domestic municipal sales of flagship products and favorable product mix with higher-than-average sales growth of meters. However, the top line missed the Zacks Consensus Estimate of $105 million. (Read more: Badger Meter Beats on Q4 Earnings, Falters on Revenues)

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, Motorola Solutions, Inc. was the biggest gainer with its share price increasing 3% while Sprint declined the most with its stock losing 3.4%.

Over the past six months, SBA Communications Corporation has been the best performer with its stock appreciating 13.3% while Qualcomm declined the most with its shares falling 27.5%.

Over the past six months, the Zacks Telecommunications Services industry has declined 1.9% while the S&P 500 fell 4.5%.

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 amid the backdrop of Meng’s extradition and criminal investigation process.

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