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The Q2 earnings season is picking up steam with various telecommunication stocks scheduled to report their quarterly numbers in the coming days. Notably, the telecommunication industry is part of a broader sector which comprises telecom operators and telecom equipment manufacturers. As per our Earnings Trend, the year-over-year earnings growth for the broader Computers and Technology sector is expected to be down 8.2% this quarter on 0.5% lower revenues. Meanwhile, if we focus on the telecom industry, the forecasts hint at reasonable growth through 2016. We believe that continuous advancement in technologies and adoption of newer business models will help boost revenues for the industry.
 
Factors to Drive Growth
 
The key elements that are likely to spur growth in the telecom sector are:
 
5G Capability: Several industry researchers believe that the 5G network will provide download speeds of 1 Gbps (gigabit per second) which is 200 times the throughput of the currently available standard 4G LTE network. Latency period of data delivery will be in single milliseconds. Further, 5G technology is designed to be more power efficient than any other standard wireless networks available in the market. Therefore, 5G-enabled mobile devices are likely to last much longer than their 3G or 4G counterparts. However, a full-fledged 5G network deployment is not expected to start until 2020.
 
Internet of Things (IoT): The IoT concept is about connecting households or commercial items to a wireless network by embedding electronic, software, or sensor technology into them. This network of devices is a giant leap toward wireless as it will reduce direct human-to-computer interaction to a great extent. Moreover, connected devices are particularly helpful for research and development purposes in the fields of science, technology and healthcare. This drive toward making everyday objects ‘smart’ may entail creation of new products and services. It is therefore no surprise that many businesses are relentlessly working on bringing about innovation in the IoT space. Market observers recognize IoT as a booming space and the number of connected things will likely surge 30% year over year to 6.4 billion in 2016, per Gartner. The research firm also estimates 20.8 billion connected devices in use by 2020.
 
Enterprise Business Requirements: As businesses move toward automating the different processes and moving functions into cloud, management of these applications is of pivotal importance. However, not all businesses have the resources to do so on their own. This is where telecom operators employ their expertise in data management and cloud computing by providing Infrastructure as a Service (IaaS) and Software as a Service (SaaS) to help such businesses manage their operations. Notably, evolving technologies such as software defined networking (SDN) and network functions virtualization (NFV) will help boost efficiency for the enterprise customers. Further, enterprise business is now one of the fastest growing segments for telecom companies.
 
Telecom Stocks to Bet On
 
Many telecom players have come up with earnings beat this quarter. Generally, stocks of companies that have beat street estimates scale higher, making them a wise investment choice. However, identifying such prospective stocks can be quite a task. This is where we simplify the search procedure by using our proprietary methodology which advises investors to screen stocks that have a 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 in 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 the above-mentioned combination, the chance of a positive earnings surprise is as high as 70%.
 
Our Picks
 
Based on the above-mentioned criteria, here are some of our selected stocks from the telecom space:
 
CenturyLink, Inc. (CTL) is a telecommunications company that provides broadband, voice and wireless services to consumers and businesses in the U.S. This Zacks Rank #3 stock currently has an earnings ESP of +1.70%. The Zacks Consensus Estimate for second-quarter 2016 earnings is pegged at 59 cents. The company is expected to report second-quarter results on Aug 3.
 
Charter Communications, Inc. (CHTR) is a leading broadband communications company and the fourth largest cable operator in the U.S. The company is poised to beat the Zacks Consensus Estimate in the second quarter of 2016, with results scheduled to be revealed on Aug 9. Charter has an earnings ESP of +404.76% and a Zacks Rank #2. Meanwhile, the Zacks Consensus Estimate for second-quarter 2016 earnings is pegged at 21 cents.
 
Cogent Communications Holdings Inc. (CCOI) offers high-speed Internet access, Ethernet transport and colocation services. This Zacks Rank #3 stock has an earnings ESP of +22.22%, which implies that it is poised to beat the Zacks Consensus Estimate of 9 cents. Cogent Communications is scheduled to report second-quarter results on Aug 4.
 
ORBCOMM, Inc. (ORBC) is a leading global satellite data communications company, focused on Machine-to-Machine communications. The stock has a combination of Zacks Rank #3 and earnings ESP of +25% which increases the possibilities of a beat this quarter. The Zacks Consensus Estimate for the bottom line is currently pegged at a loss of 4 cents per share. The company is expected to report second-quarter results on Aug 4.

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CENTURYLINK INC (CTL): Free Stock Analysis Report
 
CHARTER COMM-A (CHTR): Free Stock Analysis Report
 
COGENT COMM HLD (CCOI): Free Stock Analysis Report
 
ORBCOMM INC (ORBC): Free Stock Analysis Report
 
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