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7 Telecom Stocks Set to Beat Estimates This Earnings Season

After a lukewarm first half of 2017, most of the major telecommunications stocks have done well in the third quarter. The new U.S. telecom regulatory body, Federal Communications Commission (FCC), has given enough indications of its leniency compared with the Obama administration. The FCC is most likely to roll back a slew of stringent regulations of the previous regime. The FCC’s stance of being less restrictive will aid mergers and acquisitions, which are likely to spur growth in the rest of 2017.

2 Major Future Drivers of Telecom Industry

Upcoming 5G Wireless Networks: According to a study commissioned by Qualcomm, fifth-generation (5G) wireless technology could result in real global economic growth by $3 trillion cumulatively from 2020 to 2035. A number of industry researchers are of the opinion that 5G network will provide a download speed of 1 Gbps (gigabit per second), which is 200 times the throughput of the currently available standard 4G LTE network.

Internet of Things (IoT): Internet of Things, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is fast gaining market traction and bringing about fundamental changes in business models. Next-generation superfast wireless networks will provide the primary impetus to the telecom industry. In this context, IoT holds the potential of being the numero uno factor in driving growth in the space. Upcoming 5G mobile networks will be of utmost importance in the management of exponential growth in IoT.

Additionally, a major characteristic of the telecommunications industry is that it is immune to international geo-political disturbances even when these lead to economic fluctuations. A growing economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. The rising demand for technologically superior products has been a silver lining for the telecom industry in an otherwise tough environment.

Performance So Far

Per the latest Zacks Earnings Trend report, 87 S&P 500 members (accounting for 24.7% of the index’s total membership) have reported third-quarter earnings results as of Oct 20. Total earnings for these companies are up 9.4% from the same period last year on 7.3% higher revenues, with 71.3% beating EPS estimates and 70.1% beating revenue estimates.

The results thus far provide a positive and reassuring view of corporate earnings, which will most likely get strengthened and reconfirmed through the remainder of this reporting cycle. The above-average proportion of positive surprises that we saw in the preceding period has continued this earnings season as well. (Read: Three Takeaways from the Q3 Earnings Season)

In the telecom sector, two major national telecom carriers, Verizon Communications and T-Mobile US, have reported strong results in third-quarter 2017. Both carriers have witnessed significant net addition of post-paid wireless subscribers with reduced churn rate.

President Donald Trump’s proposed policy changes have made the overall economic outlook fairly bullish. Major proposals like a pledge to spend $1 trillion in infrastructure projects over a period of 10 years, overhaul of the tax structure to reduce tax burden and easy regulatory policies, are likely to spur higher consumer spending that may create about 25 million new jobs over a decade. This in turn will fuel long-term economic growth.

How to Make a Selection?

With the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could appear a difficult task, however, our proprietary methodology makes it fairly simple for you. One way to narrow down the list of choices during the earnings season is to look at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Choices

Relying on the above methodology, we have zeroed in on seven telecom stocks that are likely to beat the Zacks Consensus Estimate this earnings season.

Sonus Networks Inc. (SONS) has an Earnings ESP of +16.28% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank  stocks here. The company is scheduled to report results on Oct 30. It has an average positive earnings surprise of a massive 55.46% in the last four quarters.

Harris Corp. (HRS) has an Earnings ESP of +0.50% and sports a Zacks Rank #1. The company is scheduled to report results on Oct 31. It has an average positive earnings surprise of 2.99% in the last four quarters and a long-term (three-five years) earnings growth rate of 7%.

Qualcomm Inc. (QCOM) has an Earnings ESP of +1.38% and sports a Zacks Rank #2. The company is scheduled to report results on Nov 1. It has an average positive earnings surprise of 6.45% in the last four quarters and a long-term (three-five years) earnings growth rate of 9.37%.

Ubiquiti Networks Inc. (UBNT) has an Earnings ESP of +5.88% and sports a Zacks Rank #2. The company is scheduled to report results on Nov 2. It has an average positive earnings surprise of 4.99% in the last four quarters and a substantial long-term (three-five years) earnings growth rate of 20.09%.

America Movil S.A.B de C.V. (AMX) has an Earnings ESP of +10.77% and carries a Zacks Rank #3. The company is scheduled to report results on Oct 24, after the closing bell. It has a long-term (three-five years) earnings growth rate of a whopping 55.87%.

SBA Communications Corp. (SBAC) has an Earnings ESP of +12% and carries a Zacks Rank #3. The company is scheduled to report results on Oct 30. It has a substantial long-term (three-five years) earnings growth rate of 10.60%.

Comcast Corp. (CMCSA) has an Earnings ESP of +3.16% and carries a Zacks Rank #3. The company is scheduled to report results on Oct 26. It has an average positive earnings surprise of 7.77% in the last four quarters and a long-term (three-five years) earnings growth rate of 9.50%.

Bottom Line

Challenges in the form of competitive product introduction and cut-throat pricing pressure will persist in the telecom sector. However, a number of companies in the space have fared well. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Earnings ESP, could lead investors to gain this earnings season.

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SBA Communications Corporation (SBAC): Free Stock Analysis Report
 
Harris Corporation (HRS): Free Stock Analysis Report
 
QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
 
Ubiquiti Networks, Inc. (UBNT): Free Stock Analysis Report
 
Sonus Networks, Inc. (SONS): Free Stock Analysis Report
 
Comcast Corporation (CMCSA): Free Stock Analysis Report
 
America Movil, S.A.B. de C.V. (AMX): Free Stock Analysis Report
 
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