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Telecom Stock Roundup: Trade Restrictions Mar Industry Positives

Supriyo Bose
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Over the last five trading days, telecom stocks initially witnessed a V-shaped recovery on game-changing merger news but later witnessed a sharp fall as concerns over fresh restrictions against Chinese companies intensified fears of an escalating trade war in the telecom domain.

The Trump administration is reportedly mulling to introduce an executive order that could raise the bar for federal agencies to buy or sell products from Chinese technology firms, citing national security issues. The bone of contention stems from an innate desire between the two warring nations to claim dominance in cutting-edge technologies and the next generation of wireless services. The Pentagon has also banned the sale of smartphones from ZTE and Huawei — two of China’s leading technology brands — from all military establishments.

Regarding company-specific news, earnings of major telecom companies ruled the roost. The industry’s earnings in general appear to be on strong footing backed by healthy growth dynamics thanks to the existing secular trends in cloud computing, artificial intelligence and Big Data.

Recap of the Week’s Most Important Stories

1.    Nokia Corporation’s NOK first-quarter 2018 earnings (non-IFRS) per share of €0.02 or 2 cents missed the Zacks Consensus Estimate of 3 cents. In the year-ago period, the company reported non-IFRS earnings of €0.03 per share.

Net sales decreased 9% year over year to €4,929 million ($6,057.3 million) and missed the Zacks Consensus Estimate of $6,271 million. The top line primarily declined due to currency woes and lower net sales in North America. (Read more: Nokia Misses Earnings and Revenue Estimates in Q1)

2.    T-Mobile US, Inc. TMUS and Sprint Corporation S announced a deal to merge in all-stock transaction at a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share, or the equivalent of 9.75 Sprint shares for each T-Mobile share, based on the closing share price on Apr 27.

The deal would help to accelerate development of faster 5G wireless networks and ensure that the United States does not cede leadership on the technology to China. The companies expect the deal to close by the first half of 2019 and result in about $6 billion in annual cost savings. (Read more: T-Mobile Acquires Sprint to Accelerate 5G Deployment)

3.    Juniper Networks Inc. JNPR reported relatively healthy first-quarter 2018 results on the back of a solid performance from the cloud vertical and growth in enterprise business. Despite year-over-year decrease in earnings and revenues, the company was able to beat the respective estimates and remains confident of returning to a growth trajectory by the end of the year.

GAAP earnings decreased to $34.4 million or 10 cents per share from $108.8 million or 28 cents per share in the year-earlier quarter primarily due to lower revenues, which fell 11% year over year. Non-GAAP earnings for the reported quarter were $99.5 million or 28 cents per share compared with $178 million or 46 cents per share in the year-ago quarter owing to top-line woes. Non-GAAP earnings, however, beat the Zacks Consensus Estimate of 26 cents. (Read more: Juniper Surpasses Q1 Earnings & Revenue Estimates)

4.    SBA Communications Corporation SBAC reported strong first-quarter 2018 financial results, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate.

Net income for the first quarter was $31.5 million or 27 cents per share compared with $37.6 million or 31 cents per share in the year-ago quarter. Despite higher revenues, earnings decreased year over year due to higher operating costs and interest expenses. Earnings for the reported quarter exceeded the Zacks Consensus Estimate of 21 cents. Total revenues increased 8.3% year over year to $458.3 million, surpassing the Zacks Consensus Estimate of $453 million. The top line was supported by positive results in both domestic and international leasing operations as well as incremental contributions from services business. (Read more: SBA Communications Q1 Earnings Top on Higher Revenues)

5.    Harris Corporation HRS reported healthy third-quarter fiscal 2018 results, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.

Earnings from continuing operations increased to $1.67 per share from $1.31 in the year-ago quarter on top-line growth and tax benefit. Non-GAAP earnings from continuing operations were $1.67 per share compared with $1.38 in the year-earlier quarter, comfortably beating the Zacks Consensus Estimate of $1.62. Revenues for the quarter increased 5% year over year to $1,568 million, supported by growth across all three segments led by Electronic Systems and Communication Systems. The top line exceeded the Zacks Consensus Estimate of $1,548 million. (Read more: Harris Beats on Q3 Earnings & Revenues, Ups Guidance)

Price Performance

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

In the last five trading days, Juniper Networks was the major gainer with its share price rising 2.5% while Sprint was the major loser, with its stock declining 16.4%.



Over the last six months, Motorola Solutions, Inc. MSI was the best performer with its stock appreciating 12.4% while Sprint was the major decliner with its shares falling 29%.

Over the last six months, the Zacks Telecommunications Services industry underperformed the benchmark S&P 500 index with an average decline of 2.1% against a gain of 1.7% for the latter.



What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to major earnings releases of the sector next week, namely Motorola and CenturyLink, Inc. CTL.

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Juniper Networks, Inc. (JNPR) : Free Stock Analysis Report
 
SBA Communications Corporation (SBAC) : Free Stock Analysis Report
 
Nokia Corporation (NOK) : Free Stock Analysis Report
 
Harris Corporation (HRS) : Free Stock Analysis Report
 
Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
 
Sprint Corporation (S) : Free Stock Analysis Report
 
CenturyLink, Inc. (CTL) : Free Stock Analysis Report
 
T-Mobile US, Inc. (TMUS) : Free Stock Analysis Report
 
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