With the world comfortably poised on a digital edge, the need to remain connected has grown manifold. It is here that telecommunication takes center stage. The necessity for strong telecom facilities in both rural and urban areas and its role in infrastructure growth of both developed and developing markets continues to rise. Naturally, the telecommunications industry has been identified as a major impetus for global economic growth.
Momentum to Continue
The U.S. telecommunications industry is presently riding high on the growth trajectory and this momentum is likely to continue through the rest of 2015. Higher demand for technologically advanced products has been a silver lining for the telecommunication industry in an otherwise tough economic environment.
Unhindered advancement in telecom infrastructure has helped telecom operators adopt newer business models in order to boost revenues. In fact, the average revenue per user (ARPU) for most telecom carriers has increased over the last two years. Further room for improvement is in place, thanks to massive growth in mobile data usage.
Five Major Factors
Currently, the U.S. telecom industry is evolving around five broad factors. These include: (i) the increasing traction of wireless networks in the telecom industry and the consequent popularity of spectrum; (ii) the projection of aggressive high-speed fiber-based network expansion especially for video/TV offerings; (iii) consolidation within the industry, which is likely to continue mainly on airwaves shortage and attainment of economies of scale; (iv) innovative product launches expected in areas of m-Commerce, virtualization and cloud-based technology and high-speed metro Ethernet, to name a few; and (v) ample scope for expansion as nearly a fifth of rural American households lack broadband access, as per the Federal Communications Commission.
How to Make a Selection?
With the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could appear a difficult task; but our proprietary methodology makes it fairly simple for you. One way to narrow down the list of choices during the earnings season is to look at stocks that have the combination of a favorable Zacks Rank – #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with 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 this combination, the chance of a positive earnings surprise is as high as 70%.
Our Top Picks
For investors seeking to apply this strategy to their portfolio, we have chosen 4 telecom stocks that may stand out this earnings season:
CenturyLink Inc. CTL: Based in Monroe, LA, this Zacks Rank #1 stock is the third largest landline operator in the U.S. The company is a rural local exchange carrier that provides a range of communications services, including local and long distance voice, wholesale network access, high-speed Internet access, managed hosting and collocation services, other data services and video services.
For the third quarter of 2015, CenturyLink currently has an earnings ESP of +9.23%. The Zacks Consensus Estimate for earnings stands at 65 cents, reflecting year-over-year growth of 3.17%. The Zacks Consensus Estimate for revenues is pegged at $4,496 million, highlighting a marginal decrease of 0.4% year over year. Over the trailing four quarters, CenturyLink has generated a positive average earnings surprise of a mere 0.14%.
Level 3 Communications Inc. LVLT: Headquartered in Broomfield, CO, this Zacks Rank #3 stock is an international communications and information services company with presence in North America, Latin America, Europe, the Middle East, and Africa. The company operates one of the largest Internet backbones in the world and is one of the key providers of wholesale dial-up service to Internet service providers in North America.
For the third quarter, Level 3 Communications’ earnings ESP is pegged at +2.17%. The Zacks Consensus Estimate for earnings stands at 46 cents, reflecting year-over-year growth of 24.32%. The Zacks Consensus Estimate for revenues is pegged at $2,070 million, up 27.07% year over year. The company has generated a positive average earnings surprise of 9.12% over the last four quarters.
SBA Communications Corp. SBAC: Headquartered in Boca Raton, FL, this Zacks Rank #3 stock is a leading independent owner and operator of wireless communications infrastructure in the U.S. The company generates revenues from two primary businesses — site leasing and site development services.
For the third quarter of 2015, SBA Communications’ earnings ESP is an impressive +50.00%.The Zacks Consensus Estimate for earnings stands at 10 cents, reflecting year-over-year growth of a whopping 400.00%. Meanwhile, the consensus estimate for revenues is $411 million, up 4.58% year over year. In an impressive stint, SBA Communications boasts a positive average earnings surprise of 83.81% in the trailing four quarters.
Harris Corp. HRS: Based in Melbourne, FL, this Zacks Rank #3 stock has evolved from being a diversified electronics company to one that is focused solely on communications. The company is a global provider of communications equipment and services to government and commercial customers in more than 150 countries. It also offers network broadcasting, network test and management equipment and software, mobile radio networks and air traffic control systems.
For the first quarter of fiscal 2016 (ended Sep. 2015), Harris’ earnings ESP is pegged at +1.56%. The Zacks Consensus Estimate for earnings stands at $1.28, reflecting year-over-year growth of 8.48%. Meanwhile, the consensus estimate for revenues is $1,823 million, up a significant 57.84% year over year. Harris too sports a positive average earnings surprise of 9.13% over the last four quarters.
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