The overall Technology sector, of which Telecom is an essential part, is likely to report soft first-quarter 2020 earnings. The sector is expected to have taken a hit due to the coronavirus pandemic, which disrupted normal business operations and supply-chain mechanisms of various telecom firms as they preferred to exercise caution and put on hold their delivery schedules to and from China and other countries like South Korea until the health risks are neutralized. This induced a ‘supply shock’ caused by factory shutdowns and travel restrictions sparked by the virus outbreak. This, in turn, affected the sector’s profitability and triggered insecurity within the industry. Sector revenues, particularly within the chip industry, are expected to have declined significantly as the market bore the brunt of the global lockdown.
Various trade restrictions on grounds of national security concerns further hampered the supply-chain mechanism of the companies and eroded sector margins. In addition, higher infrastructure investments are expected to have escalated operating costs as 5G deployments picked up pace across the United States.
Upfront investments in capital and wireless spectrum for 5G have proven to be substantially higher than prior generations of wireless deployments due to network density requirements, potentially hurting return of capital metrics. The potential for meaningful revenues to lag 5G buildouts poses significant credit risks for providers pursuing aggressive deployments. This has become all the more pronounced as the industry lacks any clarity on the actual impact of coronavirus on the business, forcing some companies to even withdraw guidance.
Technological advances have changed the way consumers communicate, resulting in higher home data consumption and video streaming, with digital sustainability being the norm of the day as countless people seek the refuge of the safety of their homes to prevent exposure to the virus. But the worldwide mayhem induced by the virus, intense competition and commoditization of services have limited the chances of benefiting from these trends.
Per the latest Earnings Preview, total earnings for the Technology sector for the March quarter are expected to be up 2.8% on 6.2% higher revenues year over year. This compares unfavorably with the prior quarter’s earnings growth of 5.9% on 5.6% revenue growth.
Let’s take a look at four Telecom stocks that are slated to report quarterly results on May 7.
Motorola Solutions, Inc. MSI is scheduled to report first-quarter 2020 results after the closing bell. The Zacks Consensus Estimate for total revenues in the first quarter is pegged at $1,633 million. In the year-earlier quarter, it generated revenues of $1,657 million. The consensus mark for earnings is currently pegged at $1.25 per share, indicating a decline from $1.28 reported in the year-earlier quarter.
Our proven model predicts an earnings beat for Motorola this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.
Motorola currently has an Earnings ESP of +2.56% and a Zacks Rank #3.
Motorola Solutions, Inc. Price and EPS Surprise
Motorola Solutions, Inc. price-eps-surprise | Motorola Solutions, Inc. Quote
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During the quarter under review, Motorola unveiled a 900-MHz private broadband solution for the development of U.S. critical infrastructure entities across oil, gas and utility sectors. The addition of advanced communication solutions is expected to significantly boost the mission-critical ecosystem and render seamless connectivity to effectively mitigate operating risks. Despite healthy demand across land mobile radio products and other devices, driven by a comprehensive suite of services that ensures continuity and reduces risks related to critical communications operations, Motorola is likely to have recorded top-line contraction.
Qorvo Inc. QRVO is scheduled to report fourth-quarter fiscal 2020 results after the closing bell. The consensus mark for revenues is pegged at $768.4 million, which implies growth of 12.9% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at $1.32 per share, which indicates growth of 8.2% from the year-ago quarter’s reported figure.
Qorvo currently has an Earnings ESP of 0.00% and a Zacks Rank #3.
Qorvo, Inc. Price and EPS Surprise
Qorvo, Inc. price-eps-surprise | Qorvo, Inc. Quote
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Qorvo’s fiscal fourth-quarter results are expected to have benefited from consistent solid demand for ultra-high band front end modules (FEM) due to the launch of next-gen 5G smartphones. However, the company has stated that the coronavirus pandemic has reduced customer demand and affected smartphone supply chains. This is likely to have negatively impacted the company’s fiscal fourth-quarter revenues.
CommScope Holding Company, Inc. COMM is slated to report first-quarter 2020 results before the opening bell. The consensus mark for revenues is pegged at $1,976 million, which implies year-over-year growth of 79.6%. The Zacks Consensus Estimate for earnings is pegged at 8 cents per share, which indicates a decline of 83.3% from the year-ago quarter’s reported figure.
CommScope currently has an Earnings ESP of -87.76% and a Zacks Rank #3.
CommScope Holding Company, Inc. Price and EPS Surprise
CommScope Holding Company, Inc. price-eps-surprise | CommScope Holding Company, Inc. Quote
The company is likely to have benefited from focus on sound technology, a highly efficient supply chain and commitment to continuous improvement. This will potentially make the firm a preferred partner for all telecommunication businesses, as the entire industry is moving toward 5G. Efforts to reduce operational costs and optimize the overall cost structure, as it grapples with the adverse impacts of rising costs, are likely to bear fruit.
InterDigital, Inc. IDCC is slated to report first-quarter 2020 results before the opening bell. The consensus mark for revenues is pegged at $75 million, which implies year-over-year growth of 8.7%. The Zacks Consensus Estimate for earnings is pegged at a cent per share, which indicates an improvement of 111.1% from the year-ago quarter’s reported figure.
InterDigital currently has an Earnings ESP of -900.00% and a Zacks Rank #1.
InterDigital, Inc. Price and EPS Surprise
InterDigital, Inc. price-eps-surprise | InterDigital, Inc. Quote
The operating leverage of its business model and enhanced core market capabilities with a commitment toward licensing its broad portfolio of technologies to wireless terminal equipment makers are likely to have benefited the quarterly performance. The company is also likely to have gained from the increased pace of 5G deployments by carriers before the coronavirus pandemic hit the pause button.
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