For Immediate Release
Chicago, IL – April 28, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Arista Networks, Inc. ANET, CenturyLink, Inc. CTL, Motorola Solutions, Inc. MSI and Telephone and Data Systems, Inc. TDS.
Here are highlights from Monday’s Analyst Blog:
4 Telecom Stocks Likely to Outperform on Q1 Earnings
The first quarter of 2020 began on a positive note as the ‘Phase One’ trade deal between the United States and China aimed to weed out the uncertainty triggered by the prolonged trade war. The U.S. telecommunications industry was also on the cusp of a digital revolution, with leading carriers increasingly deploying 5G technology in select cities across the country and aiming at a nationwide rollout in the near future. A historic merger between the third and fourth-largest carriers in the country further stole the limelight with the promise of superior connectivity and improved yet cheap services for users. Just when the industry began cruising on a smooth sail, the coronavirus pandemic ravaged the entire script and reshaped the sector dynamics.
The virus outbreak disrupted normal business operations and supply-chain mechanisms of various telecom companies 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 were neutralized. This, in turn, affected sector profitability and triggered insecurity within the industry. Federal efforts to encourage domestic firms to develop common engineering standards for 5G networks to thwart the dominance of China-based telecommunications equipment manufacturer, Huawei, was the other hallmark in the first quarter.
Factors at Play: 5G Dominance
The 5G is billed as the technology of the future with a faster download speed and the seamless transfer of data. Although the ‘Phase One’ deal facilitated greater protection for U.S. tech firms, including preliminary injunctions and expanded legal recourse for trade secret theft, and lesser cases of forced technology transfers, it did little to address the 5G race. While China expedited efforts to develop indigenous semiconductors, driverless cars, telecom and other products to reduce reliance on U.S. technologies, the Trump administration restricted sales of U.S. technology-based products to the communist nation, hurting the overall industry.
In addition to accelerating 5G deployment across the country, the U.S. government exploited several diplomatic channels to thwart the increasing stranglehold of Huawei in Europe and encouraged other countries to deny it permission for gaining any access to their networks. The Trump administration reportedly tapped technology behemoths like Dell and Microsoft to build 5G-centric hardware so that the bulk of 5G architecture and infrastructure was made by U.S. firms. The U.S. government even urged EU nations to shun Huawei in favor of other telecommunications equipment suppliers like Nokia and Ericsson.
In order to avert potential cyber aggression with increased 5G deployment, the House of Representatives passed three bipartisan 5G security bills. These include the Secure 5G and Beyond Act, which entails the administration to create an “unclassified national strategy” to protect consumers and allies from potential threats to 5G systems, thereby protecting the “competitiveness” of U.S. firms. Two other bipartisan bills — the Promoting United States International Leadership in 5G Act and the Promoting United States Wireless Leadership Act — sought the administration to become more involved in international standard-setting bodies around wireless networks. This is likely to encourage participation by U.S. firms and other stakeholders in developing standards for 5G networks and future generations of communication networks.
During the quarter, President Trump signed the Secure and Trusted Communications Networks Act of 2019. The bill includes $1 billion in funding to help smaller rural telecoms to “rip and replace” existing equipment from manufacturers like Huawei that are deemed to be a threat to national security interests. The lawmakers are further planning to introduce a bill to prevent Huawei from accessing U.S. banks for certain transactions, thereby making it extremely difficult for the firm to carry out most dollar-designated business dealings.
The quarter marked the merger of T-Mobile with Sprint — the third and the fourth-largest wireless companies in the country. Allaying antitrust concerns, the authorities observed that the merger would create an entity that would thwart the dominance of China in the 5G market and benefit the larger community with superior rural broadband coverage. The all-stock merger is likely to accelerate the development of faster 5G wireless networks, driven by operational synergies and an expanding customer base on shared infrastructure assets. The combined entity will be a force to reckon with in the U.S. wireless, video and broadband industries, boasting a network capacity for a nationwide 5G network deployment. The agreement also establishes Dish as a disruptive force in the wireless industry, redefining the broader industry metrics.
The coronavirus pandemic has forced the larger American population to shift almost everything to the online domain — elementary schools, colleges, workplaces, shopping, dining, entertainment and even funeral — to reduce exposure to this deadly disease. With the virus wreaking worldwide devastation, claiming countless innocent lives and spooking financial markets, governments and local administration authorities are left with no other option but to enforce absolute lockdown to contain the spread as much as possible. As people are forced to seek refuge in the safety of their homes, digital sustainability has become the norm of the day.
The Federal Communications Commission (FCC) granted additional airwaves to major wireless carriers on a temporary basis. The telecom firms also worked in unison to handle the upsurge in broadband traffic and joined FCC’s "Keep Americans Connected Pledge", offering a vital lifeline to countless people whose lives have been crippled by this crisis.
How to Pick?
A multitude of telecom stocks is likely to report earnings in the coming weeks. A solid earnings performance of the telecom sector could sow the seeds for future investments in network and 5G-enabled devices for superior 5G readiness, as the industry seeks to find its feet after the virus-led mayhem.
Amid a diverse range of companies, picking the right stock for your portfolio could appear to be a colossal task. While it is impossible to be sure about such outperformers, our proprietary methodology makes the process fairly simple.
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), chances of a positive earnings surprise are as huge as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is an important ingredient of our proven model, which along with a top Zacks Rank creates the perfect combination to determine stocks with the best chances to pull off a positive surprise in the upcoming earnings announcements. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Arista Networks, Inc.: Santa Clara, CA-based Arista is engaged in providing cloud networking solutions to data centers and cloud-computing environments.
This Zacks Rank #3 stock has an Earnings ESP of +1.39%. The company is scheduled to report results on May 5, after market close.
CenturyLink, Inc.: Based in Monroe, LA, CenturyLink is a leading rural local exchange carrier providing a range of telecom services, including local and long-distance voice, wholesale network access; high-speed Internet access; and video services.
CenturyLink currently has a Zacks Rank #3 and an Earnings ESP of +1.41%. The company is slated to report results after the closing bell on May 6.
Motorola Solutions, Inc.: Based in Chicago, IL, Motorola is a leading communications equipment manufacturer and has strong market positions in bar code scanning, wireless infrastructure gear and government communications.
The company is slated to report results on May 7, after market close. The stock currently has an Earnings ESP of +3.34% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Telephone and Data Systems, Inc.: Based in Chicago, IL, Telephone and Data Systems, Inc. is a diversified telecom service provider offering wireless and wireline services in 36 states.
This Zacks Rank #3 stock has an Earnings ESP of +5.45%. The company is likely to report results after the closing bell on Apr 30.
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