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Can Wireless & WarnerMedia Traction Aid AT&T (T) Q4 Earnings?

Zacks Equity Research

AT&T Inc. T is scheduled to report fourth-quarter 2019 results before the opening bell on Jan 29. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by a penny. In the fourth quarter, the company is likely to have recorded lower revenues year over year due to adverse foreign currency translation and additional investments for new content production in HBO Max, despite the Wireless business’ solid performance and incremental contribution from WarnerMedia segment.

Factors at Play

During the fourth quarter, AT&T introduced 5G technology in certain areas of Detroit and Las Vegas among others, bringing the tally to 19 cities across the country. The company also launched 5G+ services in parts of Baltimore, Cleveland, Detroit and some other select locations during the quarter to increase the reach of such services to 35 cities. These initiatives are likely to be reflected in the upcoming results.

AT&T collaborated with Microsoft during the quarter to introduce 5G and advanced edge computing solutions to select customers in Dallas, TX. The alliance will allow AT&T’s software-defined and virtualized 5G core technology, Network Cloud, to provide low latency for enterprises, bolster core network capabilities, stimulate innovation for customers and empower workforce while minimizing operating costs. The company also inked an agreement with Amdocs Limited to upgrade and modernize the latter’s digital business support system to better analyze data and process low-latency, high-bandwidth applications. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

With premium content from HBO, Turner and Warner Bros., along with enriching advertising services and data analysis, AT&T’s WarnerMedia segment has been offering steady revenues since its acquisition. This trend is likely to have continued in the fourth quarter.

However, significant dollar strength might have weighed on revenues from Latin America for the quarter. In addition, continued investments in HBO Max in the fourth quarter for its upcoming launch, in the form of new content production, foregone licensing revenues and platform costs, are likely to have led to soft margins.

The Zacks Consensus Estimate for total revenues for the company stands at $46,907 million, indicating a decline of 2.3% from $47,993 million reported in the prior-year quarter. The consensus estimate for earnings is currently pegged at 87 cents per share. It had reported 86 cents in the year-earlier quarter.

Key Developments in Q4

During the quarter, AT&T inked an agreement to sell its wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands to Liberty Latin America in order to reduce its staggering debt burden. The deal is likely to be completed within six to nine months. By the end of 2019, AT&T completed $15 billion worth of non-core asset monetization, including the $4.5-billion sale of a preferred equity interest in a subsidiary that holds cell-tower assets. This exceeded the original target $6-$8 billion worth of non-core asset sale for the year.

Further, AT&T’s advertising unit Xandr acquired Clypd to expand into the television ad realm in the quarter. The acquisition will facilitate Xandr to introduce personalized TV ads and augment its linear TV ad space to Xandr Community – a curated marketplace of publishers that enables advertisers to reach large scale audience in a premium video environment.

During the quarter, AT&T confirmed that it will launch HBO Max in May 2020 with about 10,000 hours of premium content, leveraging an extensive collection of exclusive original programs and the most sought-after shows from WarnerMedia’s vast portfolio of beloved brands and libraries. AT&T also revealed that it aims to create a company-wide ‘membership-model’ that taps into its 170 million direct-to-consumer relationships, 5,500 retail stores and 3.2 billion annual customer touchpoints to achieve scale and reach to outsmart competition.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the fourth 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, however, is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.51%. 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.

Stocks to Consider

Here are some 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 Jan 30. It has an Earnings ESP of +0.32% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Viavi Solutions Inc. VIAV is +1.06% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Feb 4.

The Earnings ESP for Altice USA, Inc. ATUS is +11.11% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 12.

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Viavi Solutions Inc. (VIAV) : Free Stock Analysis Report
 
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
Altice USA, Inc. (ATUS) : Free Stock Analysis Report
 
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