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Will Communications Segment Buoy AT&T's (T) Q3 Earnings?

AT&T Inc. T is scheduled to report third-quarter 2019 results before the opening bell on Oct 28. For the third quarter, the company is likely to have recorded lower revenues due to adverse foreign currency translation despite solid performance of the Wireless business.

Factors at Play

The Communications segment has three business units namely, Mobility, Entertainment Group and Business Wireline.

During the third quarter, AT&T introduced mobile 5G services in certain areas of New York City, bringing the tally to 21 cities across the country. The company has reportedly won spectrum licenses that cover about 98% of the U.S. population, offering it a competitive advantage for seamless 5G deployment. This is likely to be reflected in the third-quarter results of the Mobility division.

During the quarter, AT&T entered into a new multi-year content carriage agreement with Starz — a Lions Gate Entertainment Corp.’s media and entertainment firm. The comprehensive agreement gives millions of AT&T subscribers access to Starz’s acclaimed premium original content and library of blockbuster films, which is likely to have augmented revenues of the Entertainment Group division.

During the third quarter, AT&T collaborated with IBM to facilitate diverse businesses to harness edge connections and edge computing capabilities. AT&T will also utilize IBM’s infrastructure and its open-source software platform Red Hat to optimize workload and better serve enterprise customers. This is likely to have boosted the Business Wireline division’s revenues.

Overall Expectations

Operating income from Mobility, Entertainment Group and Business Wireline is expected to be $5,805 million, $980 million and $1,410 million, respectively, compared with $5,833 million, $1,514 million and $1,390 million reported in the previous quarter. EBITDA from Mobility and Entertainment Group is expected to be $7,888 million and $2,451 million respectively, compared with $7,683 million and $2,673 million reported in the year-earlier quarter. The same from Business Wireline is expected to be $2,562 million, down from $2,646 million recorded in the previous quarter.

The Zacks Consensus Estimate for total revenues for the company are pegged at $45,006 million, indicating a decline of 1.6% from $45,739 million reported in the prior-year quarter due to adverse foreign currency translation from Latin American operations. The Zacks Consensus Estimate for earnings is currently pegged at 93 cents per share, up from 90 cents reported in the year-earlier quarter. (Read More: Can Wireless & WarnerMedia Revenues Aid AT&T Q3 Earnings?)

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.50%. 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. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

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:

Verizon Communications Inc. VZ is set to release quarterly numbers on Oct 25. It has an Earnings ESP of +0.03% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T-Mobile US, Inc. TMUS is +0.55% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 28.

The Earnings ESP for Sprint Corporation S is +27.78% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Oct 30.

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