Telecom Earnings: Verizon and AT&T Set to Report Tuesday

Telecom giants Verizon Communications and AT&T Inc. report earnings on Tuesday, July 24. Here’s a look at what might be expected from their Q2 reports.

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Two of the telecom giants are reporting earnings this week. Verizon (VZ) reports second-quarter results before market open Tuesday, July 24, and AT&T (T) releases its results after the close the same day. 

Verizon Earnings and Trading Activity

Announced in early June, VZ is about to get a new CEO. Hans Vestberg, who is currently the Chief Technology Officer, will assume the role of CEO from Lowell McAdam on August 1. Vestberg was previously the CEO at Ericsson. 

Overall analysts were optimistic about Vestberg in the role, citing his track record with technology as an indication they expect the company will likely be heavily focused on building out 5G networks and upgrading services. Analysts were also positive because they believe Vestberg is less likely to pursue growth through megamergers and acquisitions than other candidates might have been. 

For Q2, VZ is expected to report adjusted EPS of $1.14, up from $0.96 in the prior-year quarter, on revenue of $31.75 billion, according to third-party consensus analyst estimates. Revenue is projected to increase 4.9% year over year from $30.55 billion in Q2 2017. 

When VZ reported Q1 results, it had a net increase of 260,000 retail postpaid connections. All of that growth was driven by a 359,000 net increase in connected devices, which management said was primarily wearables like the Apple Watch. Both phone and tablet connections were down in Q1, with net losses of 24,000 and 75,000, respectively. VZ also reported that wireless service revenue declined 2.4% to $15.4 billion, which was offset by a 33.9% growth in equipment revenue. 

Two other areas that management might provide an update on are its cost-cutting measures. Last year the company announced a goal to cut $10 billion in costs over a four-year period. In Q1, management said they had realized $200 million in savings, and that they were on track to hit the goal. 

VZ pays a quarterly dividend of $0.59 a share, putting its current yield at about 4.6%.

Stuck in a Range? VZ shares have been trading in a range between $46 and $52 since early February. Heading into earnings, the stock has been trading closer to the $52 level, where it saw some resistance in mid-April. So far this year, shares were down 4.83%, compared to the S&P 500’s (SPX) 3.8% increase.  Chart source: thinkorswim® by TD AmeritradeNot a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around VZ’s upcoming earnings release, options traders have priced in a 2.8% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform.  Implied volatility is on the low end at the 25th percentile as of this morning.  

In short-term trading at the July 27 weekly expiration, calls have been active at the 51 and 51.5 strike prices, while puts have been active at the 50 and 50.5 strikes. Otherwise, there hasn’t been a whole lot of volume that stood out over the next several weekly expirations. 

Further out at the August 17 monthly expiration, volume for calls has been higher at the 50 and 52.5 strikes. On the put side, most of the recent trading has been concentrated at the 49 and 50 strikes. Overall, open interest is higher on the call side. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

AT&T Earnings and Trading Activity

While T’s results will still be a focus, the company’s Time Warner acquisition will likely be front and center on tomorrow’s earnings call. The deal already closed after the judge’s initial ruling giving it the green light. Not long after, the Justice Department announced it would be appealing the ruling. So management might provide some additional information about how they plan to approach the situation.

For the actual results, T is expected to report adjusted EPS of $0.88 on revenue of $39.39 billion, according to third-party consensus analyst estimates. In the same quarter last year, adjusted EPS came in at $0.79 on revenue of $39.84 billion. 

When the company last reported, total wireless subscribers had a net increase of 2.6 million. However, the company did report a net loss of 22,000 postpaid phone connections and a net loss of 177,000 tablet and computing device connections. 

Outside of its wireless results, its TV business is another of the main focuses according to analysts. In Q1, T reported a loss of 187,000 pay-TV subscribers, a trend that’s been going on for quite some time. At the same time, it did add 312,000 to its DirectTV Now streaming service. Despite the addition of more DirectTV Now subscribers, revenue in the Video segment declined to $8.4 billion in Q1, down from $9.4 billion in the prior-year quarter.

One worry that has been coming up more among analysts is T’s growing debt load, especially now that the acquisition of Time Warner has gone through. Following the merger, T’s debt stood at more than $180 billion and credit rating agency Moody’s downgraded its senior unsecured rating, expressing concerns about the company’s elevated leverage. 

Analysts have also said they think that could slow the company’s dividend growth. Last quarter, T upped its quarterly dividend by a penny to $0.50 per share. After its extended decline in the first half of the year, its current yield is now about 6.4%.

Multi-Year Low. AT&T’s (T) stock in 2018 is charted above. Shares have continued to decline so far this year and are down 19.67% year to date. The stock recently is trading right around $31 and dipped to hit a new 52-week low of $30.80. The last time it was close to that level was in mid-2015.  Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Options traders have priced in a 3.1% stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator. Implied volatility was at the 46th percentile as of this morning. 

In short-term trading at the July 27 weekly expiration, calls have been active at the 31.5 and 32 strike prices, while puts have been active at the 31 and 32 strikes. 

Looking at the August 17 monthly expiration, the 32-strike call has been the most active in recent trading, whereas trading on the put side has been concentrated at the 30 and 31 strikes. Like VZ, trading has also been heavier on the call side for T leading up to tomorrow’s earnings report.

What’s Coming Up

This week is filled with major reports from companies across sectors, but there are several big tech reports coming up. Facebook (FB) reports after market close on Wednesday, July 25; Amazon (AMZN) reports after the close Thursday, July 26; and next week Apple (AAPL) releases results on Tuesday, July 31. 

The next Fed meeting also coming up, scheduled for July 31-August 1. If you have time, check out today’s Market Update for a look at what else is going on. 

Good Trading,

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