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ETFs to Watch on Telecom Earnings

The earnings season is off to a flying start with equity markets scaling record highs, owing to a slew of upbeat economic data, strong corporate performance and President Donald Trump's tax reform proposal. However, the performance has been a mixed bag for telecom companies, with some beating market expectations, while a few failing to do so.


We will now discuss the performance of a few telecom giants such as Verizon VZ, AT&T Inc T and Sprint Corp S.


Verizon


Verizon reported non-GAAP earnings per share of $0.98, which came in line with the Zacks Consensus Estimate. However, Verizon’s third-quarter revenues of $31.717 billion beat the Zacks Consensus Estimate of $31.204 billion.


The Wireless segment revenues decreased 2.4% year over year to $21.6 billion. Net postpaid customer additions to the wireless segment were 603,000 in the quarter. Total retail postpaid churn rate was 0.97% in the third quarter. Wireline segment revenues increased 1.1% year over year to $7.6 billion. Moreover, the company’s Fios revenues grew 4.8% year over year to $2.9 billion. The company added 66,000 Fios Internet connections while it lost 18,000 Fios video connections.


Outlook


Verizon expects its 2017 organic revenues to be flat with 2016 levels. It expects its consolidated capital spending to be in the lower end of the range of $16.8-$17.5 billion. On the tax front, Verizon expects full-year effective tax rate to be around 34%.


AT&T


AT&T reported non-GAAP earnings per share of $0.74, which missed the Zacks Consensus Estimate of $0.75. Moreover, AT&T’s third-quarter revenues of $39.668 billion missed the consensus mark of $40.295 billion.


Revenue Performance


The Business Solutions segment revenues decreased 4% year over year to $17.1 billion.


Entertainment Group revenues decreased 0.6% year over year to $12.6 billion.


Consumer Mobility revenues decreased 6.3% year over year to $7.7 billion.


International revenues increased 11.7% year over year to $2.1 billion.


The telecom company reported net wireless additions of 3 million in the quarter. Its churn rate came in at 0.84%.


Sprint Corp


Sprint reported non-GAAP earnings per share of -$0.01, which beat the Zacks Consensus Estimate of -$0.02. However, Sprint’s fiscal second-quarter revenues of $7.927 billion missed the consensus mark of $8.066 billion.


The Wireless segment revenues decreased 3.1% year over year to $7.609 billion. The Wireline segment revenues decreased 21.5% year over year to $409 million. Moreover, the company witnessed net additions of 378,000 wireless customers, including 168,000 postpaid, 95,000 prepaid and 115,000 wholesale and affiliate additions.


Retail postpaid Average Revenue per User (ARPU) decreased to $46.00 from $50.54 in the year-ago quarter. Retail prepaid Average Revenue per User (ARPU) increased to $37.83 from $33.15 in the year-ago quarter.


Outlook


The company expects adjusted EBITDA to be in the range of $10.8-$11.2 billion in fiscal 2017, while it expects operating income to be around $2.1-$2.5 billion. The company anticipates capital expenditures to decline to the range of $3.5-$4 billion. However, shares suffered a setback as talks of a merger with T-Mobile failed.


In the current scenario, let’s take a look at some ETFs that have a relatively high exposure to the companies discussed (see all Telecommunication ETFs here).


Vanguard Telecommunication Services ETF VOX:


This ETF is one of the most popular funds in the telecom.


It has AUM of $1.3 billion and charges 10 basis points as fees per year. The fund has a 23.4% exposure to AT&T, 23.1% to Verizon and 2.9% to Sprint (as of Sep 30, 2017). The fund has lost 2.6% in a year and 11.2% year to date (as of Oct 30, 2017). VOX has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


Fidelity MSCI Telecommunication Services ETF FCOM:


This ETF provides exposure to the U.S. telecom space at a really low expense ratio.


It has AUM of $115.8 million and charges 8 basis points as fees per year. The fund has a 20.6% exposure to AT&T, 23.1% to Verizon and 2.3% to Sprint (as of Oct 27, 2017). The fund has returned 7.3% in a year but has lost 2.9% year to date (as of Oct 30, 2017). FCOM has a Zacks ETF Rank #3 with a Medium risk outlook.


iShares U.S. Telecommunications ETF IYZ


This ETF provides exposure to the U.S. telecom industry.


It has AUM of $377.8 million and charges 44 basis points as fees per year. The fund has 9.7% exposure to AT&T, 10.6% to Verizon and 4.8% to Sprint (as of Oct 27, 2017). The fund has lost 5.7% in a year and 13.8% year to date (as of Oct 30, 2017). IYZ has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.


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AT&T Inc. (T): Free Stock Analysis Report
 
Sprint Corporation (S): Free Stock Analysis Report
 
Verizon Communications Inc. (VZ): Free Stock Analysis Report
 
FID-TELECOM (FCOM): ETF Research Reports
 
VIPERS-TELE SVC (VOX): ETF Research Reports
 
ISHARS-US TELE (IYZ): ETF Research Reports
 
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