Is AT&T (T) Poised to Outshine Q3 Earnings Estimates?
We expect U.S. telecom behemoth AT&T, Inc.T to beat expectations when it reports third-quarter 2015 financial numbers after the closing bell on Oct 22.
Last quarter, AT&T recorded a 9.52% positive earnings surprise. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that AT&T is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP : Earnings ESP for AT&T stands at +1.47% because the Most Accurate estimate is 69 cents while the Zacks Consensus Estimate is pegged at 68 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank : AT&T currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of AT&T's Zacks Rank #3 and +1.47% ESP makes us reasonably confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Recently, AT&T scaled up to the highest position in the U.S. pay-TV market with the acquisition of DIRECTV. The deal will not only boost AT&T's earnings and revenues through enhanced video offerings but will also reduce programming costs, going forward.
With strong momentum in both its Wireline and Wireless businesses, we expect the company to generate steady earnings. Profits at the Wireless division are likely to be driven by continued strength in the company's smartphone business owing to the mobile share plan. Meanwhile, strong business revenues and enhanced strategic services should propel growth at the Wireline segment.
AT&T is forging ahead in the Internet of Things (IoT) space with its strategic partnerships and initiatives, which should allow the company to boost its business in the enterprise segment and enhance service offerings to garner significant market traction. Also, the company is the leading provider of WiFi (wireless broadband) connectivity, which is a key growth driver.
However, AT&T faces challenges like aggressive pricing plans by direct competitors, designed for iPhones and smartphones. Further, persistent losses in access lines of the company's Wireline division and expenses related to promotional strategies might weigh on the company's performance in the near term.
Stocks to Consider
AT&T is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they also have the right combination of elements to post an earnings beat this quarter:
CenturyLink, Inc. CTL has an earnings ESP of +6.15% and a Zacks Rank #1.
Cogent Communications Holdings, Inc. CCOI has an earnings ESP of +16.67% and a Zacks Rank #3.
Level 3 Communications, Inc. LVLT has an earnings ESP of +2.17% and a Zacks Rank #3.
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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