Will COVID-19-Led Revenue Woes Dent AT&T's (T) Q3 Earnings?

AT&T Inc. T is scheduled to report third-quarter 2020 results, before the opening bell, on Oct 22. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 5 cents. In the third quarter, the company is likely to have recorded lower revenues year over year due to the adverse impacts from the coronavirus pandemic, foreign currency headwinds and continued infrastructure investments for 5G deployment across the country.

Factors at Play

In the third quarter, AT&T expanded its 5G network infrastructure in Little Rock, AR; Jacksonville, FL; Minneapolis, MN; Houston, TX, among others, taking the tally to more than 395 markets across the country, serving 200 million people. AT&T is benefiting from lower levels of wireless churn due to access to 5G on its unlimited wireless plans for consumers and businesses and growing adoption of Unlimited Elite wireless plans. The company continues to invest in its wireless and wireline networks to expand coverage and improve connectivity. These initiatives are likely to be reflected in the upcoming results.

During the to-be-reported quarter, AT&T collaborated with industry partner Accenture plc for the development of a private cellular network for energy manufacturing firm Phillips 66. In addition to an industrial wireless connectivity solution, the collaboration is likely to sow the seeds of potential, low-latency 5G applications for the Industrial Internet of Things. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

During the quarter, AT&T extended its alliance with Microsoft Corporation to facilitate secure and seamless cloud connectivity of IoT devices by diverse businesses across the globe. The partnership is likely to sow the seeds of technology convergence of secure cloud computing and intricate network management skills to help businesses unlock customer value. This is likely to have been accretive to earnings in the third quarter.

However, adverse foreign currency translations, evolving market conditions in the aftermath of the deadly virus outbreak and continued investments for 5G deployments are likely to have led to soft margins. AT&T has limited visibility into the extent of the impact of COVID-19. Moreover, waiving of wireless voice and data overage fees for all customers and expanded eligibility for low-income Internet programs are likely to have drained the exchequer.

The Zacks Consensus Estimate for total revenues of the company stands at $41,587 million, indicating a 6.7% decline from $44,588 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 77 cents per share. It had reported 94 cents in the year-earlier quarter.

Key Developments in Q3

During the quarter, AT&T issued notices for the early redemption of three series of bonds worth $1.2 billion to improve its liquidity position and reduce the burgeoning debt burden through prepayment of upcoming debt maturities. The move is likely to de-risk its capital structure as the company prepares to navigate through the challenging macroeconomic environment.

In order to raise cash, AT&T has been mulling the divestment of its gaming business, dubbed the Warner Bros. Interactive Entertainment, for as much as $4 billion to improve its cash position. It is also reportedly considering to sell its ownership stake in the DirecTV satellite-television business that has been a drag on operations and focus more on its core businesses.

Earnings Whispers

Our proven model does not predict 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 not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.53%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ATT Inc. Price and EPS Surprise

ATT Inc. Price and EPS Surprise

ATT Inc. price-eps-surprise | ATT Inc. Quote

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

Other Stocks to Consider

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

Bandwidth Inc. BAND is set to release quarterly numbers on Oct 29. It has an Earnings ESP of +442.85% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Sensata Technologies Holding plc ST is +4.25% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 27.

The Earnings ESP for Corning Incorporated GLW is +0.59% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Oct 27.

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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.

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