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Telecom Stock Roundup: AT&T's Financial Update, Verizon's 5G Deployment & More

Supriyo Bose

In the past five trading days, telecom stocks scripted a remarkable turnaround and witnessed an upward trajectory, courtesy the last-minute “Phase One” trade deal between the United States and China. Although the two sides are yet to sign the agreement (which is likely to take place in January 2020), the partial trade accord represents a major breakthrough in the 21-month standoff between the world's two largest economies. The trade truce buoyed investor sentiments and propelled the industry to mirror broader equity market performance.

Per the agreement, the Trump administration has called off a 15% tariff on nearly $160 billion worth of imports from China, including toys, smartphones, laptops and other electronics items. In addition, the U.S. government will halve its 15% levy on $120 billion worth of Chinese import basket, leaving the tariff regime limited to 25% taxes on $250 billion and 7.5% on $120 billion. In response, the communist nation has suspended the planned addition of 10% and 5% tariffs on some U.S. imports. Moreover, China has reportedly agreed to purchase $200 billion of U.S. goods over the next two years, including $40-$50 billion of agricultural products each year.  

The deal also aims to iron out the sticking points of forced technology transfer and IP rights protection with China pledging to introduce strict policies to safeguard these issues. The agreement will be strictly monitored by an enforcement arm and will include a dispute resolution mechanism headed by top-level executives.

The trade agreement has offered a much-needed respite to the beleaguered industry just before the holiday season, weeding off sector uncertainty and probable tariffs on popular consumer goods and telecom equipment. With the successful completion of the “Phase One” deal, the next round of negotiation is likely to be centered around digital trade, data localization, cross-border data flows and cyber intrusions – other irritants plaguing the broader industry growth.
 
Regarding company-specific news, strategy update, 5G-enabled automated service, earnings and contract procurement took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.      AT&T, Inc. T has announced a 2% year-over-year hike in its quarterly dividend payout. The company also offered an update of its capital-allocation strategy.

AT&T has entered into an accelerated share repurchase agreement, by virtue of which it aims to retire about 100 million shares in the first quarter of 2020. At the same time, the company remains confident to reach its target of net debt-to-adjusted EBITDA ratio of about 2.5 in 2019, improving it further between 2.0 and 2.25 by the end of 2022. (Read more: AT&T Hikes Dividend, Issues Capital Allocation Update)
 
2.     Verizon Communications Inc. VZ has become the first U.S. carrier to deploy its much-acclaimed 5G Ultra Wideband service at Newport News Shipbuilding (“NNS”) in Newport News, VA.

With the creation of nation’s first 5G shipyard, Verizon has effectively utilized various ways to leverage 5G technology in the transformation of shipbuilding and manufacturing industries. A unit of America’s largest military shipbuilding company, Huntington Ingalls Industries, NNS will be equipped with enhanced network coverage, low-latency data transmission, advanced robotics, AR/VR, real-time analytics and machine learning, thereby reinforcing reliable and secured connectivity with an agile network infrastructure. (Read more: Verizon Deploys 5G Ultra Wideband Service in U.S. Shipyard)

3.      Ciena Corporation CIEN reported mixed fourth-quarter fiscal 2019 (ended Oct 31, 2019) results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same.

Quarterly adjusted net income came in at $90.4 million or 58 cents per share compared with $81 million or 53 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 5 cents. Quarterly total revenues increased 7.6% year over year to $968 million on the back of higher product sales. The top line surpassed the consensus estimate of $965 million. (Read more: Ciena Q4 Earnings Miss Estimates, Revenues Rise Y/Y)

4.     Nokia Corporation NOK has inked a contract with TIM Brazil, a leading telco and the Brazilian subsidiary of Telecom Italia, to provide IoT services to the enterprise customers of TIM Brazil.

The companies will aim to work on unlocking new IoT solutions that can be applied in various industries to help enterprises undergo digital transformation. As part of the deployment, the Nokia IMPACT IoT platform, which simplifies the process of bringing and scaling multiple applications onto a single platform, will provide IoT device management and service capability exposure. (Read more: Nokia to Drive TIM Brazil's IoT Services for Enterprises)

5.     Motorola Solutions, Inc. MSI has inked an agreement with Marino’s Market, a leading supermarket in Alabama, to improve the security measures at its two store locations. The company will deploy improved video safety and security solutions from Avigilon Corporation – one of its operating units – to offer greater visibility to the stores and augment operational efficiency.

With more than 18,000 footfalls each week at the stores, Marino’s Market is the lifeblood of the region, offering essential items and household goods for the everyday life. Amid this backdrop, the heightened security measures will help to safeguard the business from pilferage, false liability claims, shrinkage and procurement issues. The comprehensive safety devices will also help to ensure that employees follow correct cash handling procedures and track down deliveries to boost efficiency levels. (Read more: Motorola's Avigilon to Help Safeguard Alabama Supermarkets)

Price Performance

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



In the past five trading days, Arista Networks has been the biggest gainer with its share price increasing 4.4%, while CenturyLink has been the biggest decliner with its stock down 5.8%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 17.3%, while Arista Networks has been the biggest decliner with its stock down 24.4%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 3.6% and the S&P 500 has rallied 9%.



What’s Next in the Telecom Space?

In addition to product launches, strategic deals and 5G deployments, all eyes will remain glued to how the government handles the various issues relating to the inking of the “Phase One” deal.

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Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
 
Nokia Corporation (NOK) : Free Stock Analysis Report
 
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
Ciena Corporation (CIEN) : Free Stock Analysis Report
 
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