) is slated to report its second-quarter 2014 financial results on
Jul 23, after the market closes. In the last reported quarter, the
company had delivered a 1.43% earnings surprise. Let's see how
things are shaping up prior to this announcement.
Factors at Play This Quarter
Management has revised its guidance for full year 2014. The
company expects revenue growth of 4% or higher with stable margin
improvement. Adjusted earnings per share growth is estimated in the
mid-single digit range. We believe significant contribution from
the company's wireless services led to the optimistic outlook.
AT&T's wireless business, the post-paid segment in
particular, is benefiting from promotional strategies undertaken by
the company. The pre-paid market is also flourishing as evidenced
by strong customer additions.
In addition, AT&T remains focused on its project VIP
initiative, which targets business expansion. These initiatives
target 4G LTE expansion, spectrum and network capabilities
enhancement, 8.5 million new U-verse service customers and the
addition of 57 million broadband users, thus covering 75% of the
company's Wireline footprint by the end of 2015.
Further, AT&T is also seeking to expand its fiber network to
include 1 million additional customer locations by 2015. This
project underlines the company's efforts to meet the growing demand
for high-speed Internet. We believe that this investment program
will provide AT&T with a high-potential growth platform for
revenues and earnings.
Going forward, the company is also planning to buy DIRECTV for
$48.5 billion. The planned acquisition will promote AT&T in the
domestic pay-TV business to the second-largest position. Moreover,
the DIRECTV takeover will increase AT&T's video customer base
by 20.3 million from its current base of 5.7 million customers.
This will potentially take the latter's pay-TV customer count to 26
However, the company's wireline division is struggling with
persistent losses in access lines as a result of competitive
pressure from voice-over-Internet protocol (VoIP) service providers
and aggressive triple-play (voice, data, video) offerings by the
Further, AT&T remains challenged by aggressive pricing plans
by direct competitors for iPhones and smartphones. Smaller wireless
carriers also offer cost effective voice and data plans. This may
negatively influence AT&T's high-end handset sales and
challenge subscriber retention.
Our proven model does not conclusively show that AT&Tis
likely to beat earnings this quarter.This is because a stock needs
to have both a positive
and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to
happen. Unfortunately, that is not the case here as elaborated
Negative Zacks ESP:
Earnings ESP which represents the difference between the Most
Accurate estimate and the Zacks Consensus Estimate, stands at
-1.59% for AT&T.
AT&T carries a Zacks Rank #4 (Sell), which further add to the
pessimism surrounding the stock.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revision momentum.
Other Stocks to Consider
Here are some companies to consider as our model shows that
these have the right combination of elements to post an earnings
beat this quarter:
Shenandoah Telecommunications Co.
) with earnings ESP of +2.50% and a Zacks Rank #1.
) with earnings ESP of +1.85% and a Zacks Rank #2.
) with earnings ESP of +1.27% and a Zacks Rank #2.
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