Leading telecom company AT&T, Inc. (T) is scheduled to release fourth-quarter 2014 financial numbers after the closing bell on Jan 27.
In the last reported quarter, the company delivered a negative earnings surprise of 1.56%. The company has reported negative earnings surprises in two quarters last year, with an average earnings surprise of 1.1%. Let’s see how things are shaping up prior to this announcement.
Factors Likely to Influence this Quarter
In Dec 2014, AT&T’s chief financial officer expressed fears of facing considerably wider fourth-quarter churn rate in comparison to the year-ago quarter. AT&T also expects higher promotional expenses to hurt wireless service margins in the said quarter. Nevertheless, the company expects full-year 2014 wireless service margins to remain flat or show an uptick from the figure reported in 2013.
The fourth quarter has been a tough one for telecom service providers as competition has intensified to a great extent. In an effort to expand customer base, telecom operators are increasingly spending on promotions and are also coming up with lucrative discount offers. These strategies are likely to impact the wireless segment EBITDA and EBITDA service margin in the final quarter of 2014.
On the positive side, continued strength in the smartphone business owing to the mobile share plan will drive wireless business revenues for AT&T. Further, the company is the leading provider of WiFi (wireless broadband) connectivity, which is also a key growth driver.
Earnings Whispers?
Our proven model does not conclusively show that AT&T is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1, 2 or at least 3 for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: AT&T has an Earnings ESP of -1.82%. This is because the Most Accurate estimate stands at 54 cents while the Zacks Consensus Estimate is pegged higher at 55 cents.
Zacks Rank: AT&T carries a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.
On the other hand, we caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter.
Sprint Corp. (S) with an earnings ESP of +13.04% and a Zacks Rank #3.
Cablevision Systems Corp. (CVC) with an earnings ESP of +11.11% and a Zacks Rank #3.
Time Warner Cable Inc. (TWC) with an earnings ESP of +1.0% and a Zacks Rank #3.
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