We expect U.S. telecom behemoth AT&T, Inc. T to beat expectations when it reports first-quarter 2016 numbers on Apr 26, after market close.
Last quarter, AT&T recorded a 1.56% negative earnings surprise. However, the trailing four-quarter average earnings surprise stands at 4.20%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that AT&T is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: Earnings ESP for AT&T stands at +1.45% because the Most Accurate estimate is 70 cents while the Zacks Consensus Estimate is pegged at 69 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: AT&T currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of AT&T’s Zacks Rank #3 and +1.45% ESP makes us reasonably confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
With its combination of U-verse, DIRECTV’s satellite TV and an all-fiber GigaPower Internet service; AT&T now enjoys the operational flexibility to provide both traditional cable TV service as well as mobile video streaming service. This should certainly boost the company’s bottom and top-line performance.
Moreover, the re-launch of unlimited wireless data plan by AT&T is likely to boost sales as unlimited data is a huge selling point for customers who are weary of data caps and look for unrestricted access to high-definition video.
Additionally, undertaking of initiatives in the IoT space and increased investments in the Mexican telecom market should bolster the company’s performance in the to-be-reported quarter. Plans to offer three Internet TV packs for different types of viewers by year-end also bode well.
Meanwhile, expansion in the fiber arena and efforts to enhance its broadband services should prove highly accretive to profits in the wireline business, which has been witnessing loss of voice customers for quite some time now.
However, a saturated wireless market, various regulatory concerns and intensifying pricing competition are certain factors that may weigh upon the quarter’s performance. In this regard, offering up to $650 in credits to those opting to switch over to its network should help fend off some competition.
Other Stocks to Consider
AT&T is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they also have the right combination of elements to post an earnings beat this quarter:
Sprint Corporation S has an earnings ESP of +69.23% and a Zacks Rank #3.
Cogent Communications Holdings, Inc. CCOI has an earnings ESP of +25.00% and a Zacks Rank #3.
Level 3 Communications, Inc. LVLT has an earnings ESP of +8.89% and a Zacks Rank #3.
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