Telecom stock roundup: Verizon and AT&T disappoint Q3 earnings, Vodafone to mark maiden launch LTE-A launch in U.K.

In the last week, most of the major telecom stocks traded in the positive. This despite the fact that telecom behemoth Verizon Communications Inc. (VZ) and AT&T Inc. (T) failed to meet both the top and bottom line of the respective Zacks Consensus Estimate in the third quarter of 2014.

Chinese telecom giant China Mobile Ltd. (CHL) also reported weak financial results for the third-quarter of 2014. Nevertheless, the positive outcome is that all three large telecom operators continue to gain subscribers.

Meanwhile, Vodafone Group Plc. (VOD) is set to become the first wireless operator in the U.K. to offer LTE-A (Long-Term Evolution Advanced) service. Additionally, Comcast Corp. (CMCSA) recently won a patent infringement case against Sprint Corp. (S).

Recap of the Week’s Most Important Stories

1.    Verizon reported disappointing financial results for the third quarter of 2014. Lower-than-expected financial results were primarily due to higher cost of services and sales and higher interest expenses. Quarterly net income came in at $3,794 million or 89 cents per share compared with $5,578 million or 78 cents per share in the year-ago quarter.

However, earnings per share of 89 cents fell below the Zacks Consensus Estimate of 92 cents. Quarterly total revenue increased 4.3% year over year to $31,586 million but lagged the Zacks Consensus Estimate of $31,707 million.

2.    China Mobile, the largest wireless operator of China reported disappointing financial results for the third quarter of 2014. Both total revenue and net earnings declined year over year. Net profit dropped for the fifth successive quarter.

The dismal performance can be largely attributed to five reasons, including (1) slowing down of growth in the Chinese mobile market (2) higher expenses related to 4G TDD-LTE network rollout (3) increased customer retention costs (4) newly imposed value-added taxes and (5) intensifying competition.

3.    Vodafone, the largest wireless carrier in Europe has decided to install LTE-A (Long-Term Evolution Advanced) network in Birmingham, London and Manchester this month. The company will become the first wireless carrier in the U.K. to commercially offer LTE-A service. In Jun 2013, SK Telecom Co. Ltd. (SKM) of South Korea became the first wireless operator in the world to commercially launch LTE-A network using carrier aggregation. In Mar 2014, AT&T became the first wireless operator in the U.S. to launch LTE-A services in Chicago.

4.    AT&T is likely to witness strong momentum in both its Wireline and Wireless businesses. Continued strength in the smartphone business owing to the mobile share plan is driving the carrier’s wireless business. With respect to the Wireline segment, management expects positive business trends to continue in the coming quarter driven by strong business revenues and enhanced strategic services.

However, the company faces several limitations in the wireless spectrum division. It recently received a restriction from the Federal Communications Commission regarding substantial airwave acquisitions in the upcoming auction. On the financial front, promotional costs associated with Project Velocity IP and Agile pose major impediments in the company’s growth trajectory.

Price Performance

The following table shows the price movement of major telecom players over the past week and the last 6 months.

Over the last five trading sessions, the price movement for most of the major telecom stocks was positive. However, the notable exception was China Mobile. T-Mobile US (TMUS) and Vodafone emerged as top gainers over the last 5 trading sessions.

Over the last 6 months, the price performance of major telecom stocks was mixed. China Mobile and America Movil witnessed considerable rally in stock prices of 20.30% and 23.26%, respectively. However, Sprint collapsed a massive 29.12% and T-Mobile US lost 11.25% of value over the same time frame.

What’s Next in the Telecom Sector?

We expect telecom sector activities continue to increase in the next week as several telecom operators and network equipment manufacturers will release their earnings results. Largest cable MSO Comcast and leading telecom gear manufacturer Nokia (NOK) are scheduled to release third-quarter 2014 financial results soon. Further, Canadian wireless and cable behemoths Rogers Communications (RCI) and Shaw Communications (SJR) will also come up with their earnings results.

AT&T INC (T): Free Stock Analysis Report
SHAW COMMS-CL B (SJR): Free Stock Analysis Report
SPRINT CORP (S): Free Stock Analysis Report
NOKIA CP-ADR A (NOK): Free Stock Analysis Report
SK TELECOM CO (SKM): Free Stock Analysis Report
CHINA MOBLE-ADR (CHL): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
ROGERS COMM CLB (RCI): Free Stock Analysis Report
COMCAST CORP A (CMCSA): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis Report
T-MOBILE US INC (TMUS): Free Stock Analysis Report
 
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Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.

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