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High Consumer Mobility Revenues to Aid AT&T (T) Q3 Earnings

AT&T Inc.T is scheduled to report third-quarter 2018 results before the opening bell on Oct 24. The company is likely to record higher revenues from the Consumer Mobility segment, which accounts for the lion's share of total revenues, on a year-over-year basis.

Whether this will benefit the bottom line of the company remains to be seen.

Key Factors

The Consumer Mobility segment provides triple-play (voice, video and high-speed Internet) wireless service to consumer, wholesale and resale subscribers in the United States. AT&T's home monitoring service is also part of this segment.

Over the past five years, AT&T has invested around $145 billion in wireless and wireline networks, including capital investments and acquisition of wireless spectrum and operations. Currently, the company's wireless network covers more than 99% of Americans. Its fiber network is one of the nation's largest and connects more Internet of Things devices compared to any other provider in North America.

Moreover, the FirstNet Project, which is the first dedicated nationwide wireless network for first responders, is likely to drive AT&T's top-line growth. AT&T and the First Responder Network Authority (FirstNet) revealed the inclusion of 50 states, two U.S. territories and Washington DC in the FirstNet project. As part of the 25-year contract, FirstNet will provide AT&T with a swath of 20 MHz of spectrum in the 700 MHz frequency band for the entire duration. AT&T will also be given success-based payments of $6.5 billion over the next five years to design and build the network. The company is expected to spend around $40 billion over the life of the contract to build, deploy, operate and maintain the network. It has projected that this contract will create more than 10,000 jobs over the next two years. This contract can be considered a necessary boost to the company's profile. Per the deal, AT&T will be able to use this highly valuable spectrum for both commercial and consumer purposes.

Furthermore, as part of its 5G deployment in a dozen cities in 2018, AT&T intends to launch mobile 5G service in certain areas of five cities, namely Houston, Jacksonville, Louisville, New Orleans and San Antonio this year. These add to its previously announced seven cities of Atlanta, Charlotte, Dallas, Indianapolis, Oklahoma City, Raleigh and Waco. The U.S. telco giant is further planning to bring mobile 5G service to parts of Las Vegas, Los Angeles, Nashville, Orlando, San Diego, San Francisco and San Jose in early 2019 to take the tally to 19 cities, and expand thereafter. Notably, AT&T's 5G deployment will entail utilization of millimeter wave spectrum to deploy 5G. In parts of urban, suburban and rural areas, the company aims to deploy 5G on its mid and low-band spectrum holdings.

Buoyed by such tailwinds, the Zacks Consensus Estimate for revenues in the Consumer Mobility segment in the to-be-reported quarter is currently pegged at $15,126 million, which is considerably higher than the year-ago reported figure of $7,748 million. The higher revenue expectations can be attributed to an uptick in demand and an upgrade to state-of-the-art infrastructure. Moreover, the Zacks Consensus Estimate for segment EBITDA is pegged at $6,775 million, which represents more than two-fold increase from $3,197 million reported in the year-earlier quarter.

Overall Expectations

Total revenues for the company are expected to be $45,630 million compared with $39,668 million reported in the prior-year quarter. (Read More: Will Healthy Top-Line Growth Benefit AT&T's Q3 Earnings? )

Our proven model shows that AT&T is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.58%, with the former pegged at 94 cents and the latter at 93 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

AT&T Inc. Price and EPS Surprise

AT&T Inc. Price and EPS Surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

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

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Windstream Holdings, Inc. WIN is slated to release quarterly numbers on Nov 8. It has an Earnings ESP of +4.64% and a Zacks Rank #3.

United States Cellular Corporation USM is likely to release results around Nov 14. The company has an Earnings ESP of +57.45% and sports a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here .

The Earnings ESP for CenturyLink, Inc. CTL is +6.10% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 8.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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