AT&T vs Qualcomm: Which Stock is Poised for Better Earnings?

The fourth-quarter earnings season is picking up pace, with multiple companies reporting earnings each day. Per the latest Earnings Preview, approximately 400 companies, including 121 S&P 500 members, will report earnings this week. To date, 26% of the S&P 500 members have already reported results, with another 24% slated to release results this week.

Generally, earnings releases are quite scattered this quarter. Moreover, the earnings calendar is not the same for all companies.

Let’s take a look at two stocks — AT&T Inc. T and Qualcomm Inc. QCOM — which will release results on Jan 31, after market close. While, AT&T will report fourth-quarter 2017 results, Qualcomm is slated to release first-quarter fiscal 2018 numbers.

Notably, the companies are grouped under the Computer and Technology sector (one of the 16 Zacks sectors).

Here, we discuss the price performance and fundamentals (financial and non-financial) of the companies to gain an idea about how they will fare this earnings season.

We rely on our Zacks methodology to help investors choose the better stock. Our quantitative model states that a stock needs to have a positive Earnings ESP and a Zacks Rank #3 (Hold) or better to deliver earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Let’s take a closer look at each of the aforementioned factors.

Price Performance

We have compared the price performances of AT&T and Qualcomm with the broader sector and the S&P 500 index for the October-December 2017 period.

Shares of Qualcomm returned 23.5% outperforming the broader sector’s and S&P 500 index’s rally of 6.3% and 5.5%, respectively. However, AT&T’s shares declined 0.7% over the same time frame.

AT&T

AT&T is one of the leading telecommunication service providers in the United States. The company’s wireless opportunities from the launch of standards-based mobile 5G services in 2018 and the FirstNet project look impressive. Meanwhile, its move to raise quarterly dividend by 2% to 50 cents per share (annualized $2.00 per share) is encouraging. In December 2017, AT&T’s over-the-top (OTT) online streaming service — DIRECTV NOW — reported more than 1 million subscribers, despite cord-cutting. The company reported a net gain of approximately 0.213 million DIRECTV NOW connections, since Sep 30, 2017. It is to be seen whether the company can maintain subscriber gain in the to-be-reported quarter.

AT&T is expected to earn 65 cents per share on $41.2 billion in revenues in the to-be-reported quarter. The company has a mixed earnings surprise history. In two of the previous four quarters, the company’s bottom line met the Zacks Consensus Estimate. Earnings outpaced the Zacks Consensus Estimate in one of the four, the average beat being 1.36%.

However, AT&T has an Earnings ESP of -0.15%. This negative ESP makes surprise prediction difficult despite the company’s favorable Zacks Rank #3. (Read more: What's in the Cards for AT&T This Earnings Season?)

Qualcomm

Qualcomm is one of the largest manufacturer of wireless chipset based on baseband technology. The company has been trying to retain its leadership in 5G, chipset market and mobile connectivity with multiple technological achievements and launches. On the flip side, the company has been involved in various legal brawls related to unfair business practices or licensing royalty payments.

Per the Zacks Consensus Estimate, Qualcomm is expected to earn 90 cents per share and $5.95 billion in revenues in the to-be-reported quarter. Segment-wise, revenues in Qualcomm Code Division Multiple Access (CDMA) Technologies (QCT) are estimated at $4,648 million, up from $4,650 million and $4,101 million reported in fourth-quarter 2017 and first-quarter fiscal 2017, respectively. Qualcomm Technology Licensing (QTL) revenue estimate of $1,228 million is above $1,800 million and $1,811 million reported in fourth-quarter 2017 and first-quarter fiscal 2017, respectively.

Per the Zacks Consensus Estimate, the company’s prospects in the to-be-reported quarter based on certain non-financial metrics look encouraging. Qualcomm is expected to ship approximately 230 million CDMA-based MSM (Mobile Station Modem) chipsets in the quarter, up from 220 million reported in the previous quarter. The estimate is in line with management’s previous chipset outlook of 220-240 million for first-quarter fiscal 2018.

Qualcomm has a mixed earnings surprise history. In the trailing four quarters, the company’s earnings lagged the Zacks Consensus Estimate in two and beat the same in the other two. The average positive surprise for the last four quarters is 6.31%.

Moreover, the company has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP (both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 90 cents) makes surprise prediction difficult. (Read more: Qualcomm to Report Q1 Earnings: What's in Store?)

Our Take

Per our proprietary model, AT&T and Qualcomm are unlikely to post earnings beat in the to-be-reported quarter. However, Qualcomm’s Earnings ESP of 0.00% lends it an edge over AT&T’s -0.15%.

Irrespective of an earnings beat or miss, investors should focus on the companies’ fundamentals to take a decision. Therefore, don’t forget to check our full write up on earnings releases of these stocks later.

Key Picks

Here are some companies from the broader Computer and Technology sector which are poised for an earnings beat in their respective upcoming quarterly results.

Microsoft MSFT is scheduled to post second-quarter fiscal 2018 results on Jan 31. The company has an Earnings ESP of +0.21% and carries a Zacks Rank #3. The company is expected to earn 86 cents per share on $28.4 billion in revenues, up 3.6% and 8.8% from the year-ago quarter, respectively. Moreover, the company portrays a positive earnings surprise history, beating the Zacks Consensus Estimate in all of the previous four quarters with an average positive surprise of 16.39%.

Apple AAPL will report first-quarter 2018 results on Feb 1. The company has an Earnings ESP of +1.56% and carries a Zacks Rank #3. The company is expected to earn $3.81 per share on $86 billion in revenues, up 13.4% and 9.8% from the year-ago quarter, respectively. Moreover, the company portrays a positive earnings surprise history, surpassing the Zacks Consensus Estimate in all of the previous four quarters with an average beat of 6.35%.

CenturyLink CTL will release fourth-quarter 2017 results on Feb 14. The company has an Earnings ESP of +14.87% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company is expected to earn $5.7 billion and $6 billion in revenues, up 32.6% and 42.9% in the fourth-quarter 2017 and first-quarter 2018, respectively.

Windstream Holdings WIN is expected to release fourth-quarter 2017 results on Mar 7. The company has an Earnings ESP of +16.10% and carries a Zacks Rank #3. The company’s fourth-quarter 2017 sales and earnings are estimated to increase 13.7% and 23.5%, respectively.

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