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Can Wireless & WarnerMedia Revenues Aid AT&T (T) Q3 Earnings?

Zacks Equity Research

AT&T Inc. T is scheduled to report third-quarter 2019 results before the opening bell on Oct 28. In the last reported quarter, adjusted earnings matched the Zacks Consensus Estimate. For the third quarter, the company is likely to have recorded lower revenues due to adverse foreign currency translation despite solid performance of the Wireless business and incremental contribution from WarnerMedia assets.

Factors at Play

During the third quarter, AT&T introduced mobile 5G services in certain areas of New York City, bringing the tally to 21 cities across the country. The company has reportedly won spectrum licenses that cover about 98% of the U.S. population, offering it a competitive advantage for seamless 5G deployment. This is likely to be reflected in the upcoming results.

During the quarter, AT&T entered into a new multi-year content carriage agreement with Starz — a Lions Gate Entertainment Corp.’s media and entertainment firm. The deal secures rights for AT&T to offer the full suite of STARZ and STARZ ENCORE premium linear and HD channels, On-Demand, HD On-Demand and online services to its DIRECTV, AT&T TV and U-verse video platform customers. The comprehensive agreement gives millions of AT&T subscribers access to Starz’s acclaimed premium original content and library of blockbuster films, which is likely to have augmented revenues of the Entertainment Group division.

During the third quarter, AT&T collaborated with IBM to facilitate diverse businesses to harness edge connections and edge computing capabilities. AT&T will also utilize IBM’s infrastructure and its open-source software platform Red Hat to optimize workload and better serve enterprise customers, thereby likely witnessing higher revenues for the Business Wireline division.

However, significant dollar strength is likely to have weighed on Latin American revenues for the quarter, and consequently total revenues for the company are expected to be $45,006 million, down 1.6% from $45,739 million reported in the prior-year quarter. The Zacks Consensus Estimate for earnings is currently pegged at 93 cents per share, up from 90 cents reported in the year-earlier quarter.

Key Developments in Q3

During the quarter, AT&T inked an extensive, multi-year technology collaboration with Microsoft. Under this new strategic alliance, the two leading companies will accelerate innovation and apply cutting-edge technologies that include 5G, cloud and AI to transform every aspect of work and life. The company’s efforts are likely to allow it to better focus on core network capabilities, accelerate innovation and empower workforce, while optimizing costs. This is likely to aid AT&T in becoming a “public cloud first” company by migrating most of its non-network workloads to the public cloud by 2024.

Further, AT&T’s announced that WarnerMedia is likely to roll out a streaming service in spring 2020 with an unrivaled bouquet of premium and exclusive content for an impressive direct-to-consumer experience across various age groups. The combination of WarnerMedia’s huge ad inventory with the data provided by AT&T’s large-scale networks offers significant upside potential for the future.

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the third quarter. 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.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

 

AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Verizon Communications Inc. VZ is set to release quarterly numbers on Oct 25. It has an Earnings ESP of +0.40% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T-Mobile US, Inc. TMUS is +0.55% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 28.

The Earnings ESP for Sprint Corporation S is +27.78% and it carries a Zacks Rank of 3. The company is likely to report quarterly numbers on Oct 30.

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