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Telecom Stock Roundup: Strong Q4 Video Customer Gain at Comcast, Time Warner Cable; S&P Downgrades Sprint

The telecom industry experienced a solid run on the bourse in the past week as well, as most of the key stocks traded in the green. On the earnings front, Time Warner Cable Inc. TWC reported strong financial numbers in the fourth quarter of 2015.

Both the top and the bottom line surpassed the Zacks Consensus Estimate. In the reported quarter, the company added a net of 54,000 video, 281,000 high-speed Internet and 227,000 voice customers within its residential services.

On the other hand, Comcast Corp. CMCSA reported mixed financial results wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. Importantly, the company added a net of 460,000 high-speed Internet customers, 139,000 voice customers and 89,000 video subscribers in the reported quarter. Additionally, Comcast is currently planning for the launch of its DOCSIS 3.1 compliant Gigabit Internet service later this year.

Earnings news also came in at leading wireless tower operator Crown Castle International Corp. CCI , which reported mixed financial numbers in the fourth quarter of 2015, beating the Zacks Consensus Estimate of revenues and lagging the same for earnings.

In contrast, largest mobile chipset developer Qualcomm Inc. QCOM reported impressive financial results in the first quarter of fiscal 2016 wherein the top and the bottom line steered past the respective Zacks Consensus Estimate.

Meanwhile, Standard & Poor's (S&P) Ratings Services downgraded Sprint Corp.'s S already junk-rated debt to "B" from "B+". S&P cited two major reasons - intense competition and a challenging environment in the wireless industry - behind the credit rating downgrade.

Notably, in Sep 2015, credit rating agency Moody's Investor Service had also downgraded Sprint's credit rating to B3 from B1, or six levels below investment-grade citing excessive pressure from intensifying competition.

Outside the U.S., several significant developments took center stage within the telecom sector. According to a recent report by Bloomberg, British telecom giant Vodafone Group Plc VOD is in talks with Liberty Global Plc LBTYA - the largest cable MSO (multi-service operator) in Europe, for a possible merger of their operations in the Netherlands.

Last year, the two companies had been negotiating on a series of transactions including global asset swaps. However, the merger negotiations were abandoned after the two companies failed to reach an agreement on valuations.

Recently, the communications regulator in the U.K. -- Ofcom - attempted to lobby the European Union Competition Commission (EC), expressing concerns regarding the proposed merger deal between Telefonica S.A. TEF and Hutchison in the country and its possible consequences.

In Mar 2015, Telefonica had decided to divest its U.K. wireless operations, which run under the O2 brand, to Hutchison Whampoa, currently operating under the 3 UK brand in the nation. The EC has set April 22, 2016, as a provisional deadline for deciding whether or not to approve the deal.

Leading Taiwanese telecom operator Chunghwa Telecom Co. Ltd. CHT declared strong financial results in the fourth quarter of 2015. Quarterly total revenue came in at approximately $1,904 million, up 0.8% year over year. Fourth-quarter net income came in at around $290 million, up 7.4% year over year. Net earnings per ADR were 37 cents, up 2.8% year over year.

Read the last Telecom Stock Roundup for Jan 28, 2016 .

Recap of the Week's Most Important Stories

1. GAAP net income of Comcast in the fourth quarter of 2015 came in at $1,971 million or 79 cents per share compared with $1,925 million or 74 cents per share in the prior-year quarter. Quarterly adjusted earnings per share of 81 cents were a penny short of the Zacks Consensus Estimate. Meanwhile, quarterly total revenue was $19,245 million, up 8.5% year over year and substantially ahead of the Zacks Consensus Estimate of $18,778 million. (Read More: Comcast Q4 Earnings Lag, Revenues Top on Subscriber Gain .)

2. Time Warner Cable's quarterly GAAP net income came in at $486 million or $1.70 per share compared with $554 million or $1.96 per share in the prior-year quarter. Quarterly adjusted earnings per share of $1.80 were a penny ahead of the Zacks Consensus Estimate. Quarterly total revenue came in at $6,072 million, up 4.9% year over year and above the Zacks Consensus Estimate of $6,034 million. (Read More: Time Warner Cable Beats Q4 Earnings, Revenues .)

3. According to S&P, improvement in Sprint's longer-term liquidity position looks dicey as Sprint will be tested to effectively grow its subscriber base and reverse negative free operating cash flow trends. As the U.S. boasts a high rate (95%) of wireless penetration, competition is intense. This, in turn, is exerting immense pressure on both the top and the bottom line of carriers vying for market share. (Read More: Sprint: S&P Slashes Credit Rating; Stock Plummets .)

4. Liberty Global is a leading cable MSO with presence in 12 European countries. Besides its triple-play (video, voice and fixed line broadband) services, the company is now also offering mobile services. Vodafone, on the other hand, is a global telecom operator. The company recently diversified its operations in the cable-TV space. In such a scenario, a broad-based merger of Vodafone and Liberty Global will create an integrated telecom behemoth offering quad-play wireless, wireline, voice and video services. (Read More: Will Vodafone and Liberty Global Merge in Netherlands? )

5. At present, Telefonica's O2 serves over 22 million customers in the UK. Post-merger, the combined entity, with a consolidated subscriber base of more than 30 million, will form the largest wireless operator in the country. Ofcom estimated that the combined entity once formed, will command more than 40% share of the UK wireless market.

In such a situation, the price of wireless services may go up by 10-20% with only three major operators ruling the game as against the current market scenario of four players. (Read More: Will Telefonica-Hutchison Merger in UK See the Light of Day? )

Price Performance

The following table shows the price movement of major telecom players over the past week and the last six months.

Company Last Week Last 6 Months
VZ 3.24% 10.52%
T 3.49% 8.96%
S -2.74% -14.97%
TMUS -0.42% -7.59%
VOD -0.06% -14.53%
CHL 3.15% -11.94%
AMX 5.38% -25.19%
CMCSA 6.87% -7.69%
DISH 1.25% -27.34%

Over the past week, most of the major telecom stocks have gained value. Comcast (6.87%) and America Movil (5.38%) were the biggest grossers. On the contrary, over the last six months, the price performance of key telecom stocks has been predominantly negative . DISH Network (27.34%), America Movil (25.19%), Sprint (14.97%), Vodafone (14.53%) and China Mobile (11.94%) have depreciated substantially over the six-month period while Verizon has gained value (10.52%).

What's Next in the Telecom Sector?

We expect significant activities to continue in the telecom sector over the next week as America Movil, Telus, CenturyLink and Infinera Corp. release their fourth-quarter 2015 financial results. The market will closely evaluate these quarterly results in a bid to assess industry dynamics and future growth prospects.

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CROWN CASTLE (CCI): Free Stock Analysis Report

QUALCOMM INC (QCOM): Free Stock Analysis Report

TELEFONICA S.A. (TEF): Free Stock Analysis Report

SPRINT CORP (S): Free Stock Analysis Report

CHUNGHWA TELECM (CHT): Free Stock Analysis Report

LIBERTY GLBL-A (LBTYA): Free Stock Analysis Report

COMCAST CORP A (CMCSA): Free Stock Analysis Report

TIME WARNER CAB (TWC): Free Stock Analysis Report

VODAFONE GP PLC (VOD): Free Stock Analysis Report

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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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