T-Mobile & Motorola Surpass Earnings Estimates & More

The U.S. telecom stocks witnessed a gradual uptrend in the past week with better-than-expected bottom-line figures from the firms that have reported so far, despite broad-based revenues hit by the coronavirus-induced turmoil. The industry was further buoyed by the availability of more airwaves in the mid-band spectrum range for commercial use from the Pentagon. This is likely to speed up the process of 5G deployment across the country, infusing positivity within the rank and files of the sector. In addition, a favorable court verdict that upheld FCC’s earlier decision to cap the fees for wireless carriers by local administrative authorities for deploying small cells for 5G adoption seemed to propel the stocks.

Meanwhile, President Trump has signed executive orders that prohibit any business transactions with the Chinese owners of TikTok and WeChat. The new orders will come into effect in 45 days and take recourse of the National Emergencies Act and International Emergency Economic Powers Act. The decision comes amid ongoing negotiations between Microsoft and Tiktok’s owner Bytedance to ink an agreement to buy the latter’s U.S. businesses before Sep 15 in order to continue operating in the country. Notably, the White House is seeking a ban on TikTok, WeChat and other Chinese apps that are allegedly being used as cyber espionage tools to gain access to sensitive American data. The Trump administration is further aiming to rip off Chinese apps from American mobile app marketplaces. At the same time, it is also preventing Chinese hardware manufacturers from pre-installing popular American apps on their devices.

In order to accelerate the pace of 5G deployments to deter China’s dominance, the Pentagon decided to release its stranglehold on frequencies between 3.4 GHZ and 3.5 GHZ for commercial purposes. The spectrum is likely to be made available to domestic carriers through public auctioning, raising as much as $10 billion for the public exchequer. Markedly, the mid-band spectrum is highly coveted by telecom firms as it allows longer ranges of electromagnetic waves and better penetration of signals through walls. This, in turn, has provided a much-needed shot in the arm for the industry as 5G adoption reportedly failed to take off as intended with limited 5G network coverage in suburban areas.

The 9th U.S. Circuit Court of Appeals in San Francisco has further upheld FCC’s decision to safeguard the interests of telecom firms against the exorbitant fees charged by several cities for deploying small cells. These integral components of 5G network will now be legally available for deployment without local governments’ regulations and any discriminatory policies for denying or delaying 5G and broadband service providers’ access to poles. These factors have likely created a sense of security within the industry, triggering the uptrend.

Regarding company-specific news, earnings primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     T-Mobile US, Inc. TMUS reported stellar second-quarter 2020 results, with the bottom line beating the Zacks Consensus Estimate. This was the firm’s first quarter as the New T-Mobile, since the closing of its merger with Sprint on Apr 1.

Adjusted earnings per share came in at 61 cents, which beat the Zacks Consensus Estimate by 50 cents and marked an earnings surprise of 454.6%. Quarterly aggregate revenues soared 61% year over year to $17,671 million, driven by the Sprint merger and customer growth at T-Mobile. However, the top line lagged the consensus mark of $17,773 million.
 
2.     Motorola Solutions, Inc. MSI reported relatively healthy second-quarter 2020 results, driven by diligent execution of operational plans. Despite surpassing the respective Zacks Consensus Estimate, revenues and adjusted earnings decreased year over year due to coronavirus-induced adversities. The company remains well poised to tide over the storm with a solid cash flow and balance sheet position.

Excluding non-recurring items, non-GAAP earnings in the quarter were $1.39 per share compared with $1.69 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 19 cents. Quarterly net sales fell 13% year over year to $1,618 million due to lower demand in the Americas and the International business, triggered by the coronavirus pandemonium. The top line, however, exceeded the Zacks Consensus Estimate of $1,574 million.

3.      United States Cellular Corporation USM reported robust second-quarter 2020 financial results, with the top and bottom lines surpassing the Zacks Consensus Estimate. Consistent 5G deployments, accretive customer connections and churn rate mitigation strategies on the back of network modernization efforts drove U.S. Cellular’s quarterly performance.

On a GAAP basis, net income in the June quarter was $68 million or 78 cents per share compared with $31 million or 35 cents in the year-ago quarter. Backed by network modernization efforts, the two-fold rise in earnings despite a flat revenue trajectory can be primarily attributed to lower operating expenses. The bottom line beat the Zacks Consensus Estimate by 55 cents. Quarterly total operating revenues amounted to $973 million, flat year over year. The top line surpassed the consensus mark of $912 million.

4.      Viavi Solutions Inc. VIAV reported decent fourth-quarter fiscal 2020 (ended Jun 27, 2020) results, with the bottom and top lines surpassing the Zacks Consensus Estimate. The San Jose, CA-based company delivered lower revenues due to pandemic-related adversities.

In the June quarter, non-GAAP net income came in at $40.8 million or 18 cents per share compared with $40.1 million or 17 cents in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 4 cents. Impacted by the pandemic, quarterly total net revenues declined 8% year over year to $266.6 million compared with $289.7 million in the prior-year quarter. However, the top line surpassed the consensus mark of $260 million.  

5.      In a major relief to an adverse antitrust ruling against it, Qualcomm Incorporated QCOM has secured a landmark judgment when the U.S. Ninth Circuit Court of Appeals reversed an earlier ruling by federal judge Lucy Koh.

The favorable decision validated its patent licensing business and reinforced the fairness of the competitive marketplace. Additionally, the higher court vacated an injunction against Qualcomm that mandated the chipmaker to change its intellectual property practices and redo its licensing deals with firms like Apple Inc. and Samsung Electronics Co. Unsatisfied with the verdict, the FTC is likely to consider its legal options and request the appeals court to reconsider its decision.

Price Performance

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

In the past five trading days, CenturyLink has been the best performer with its stock rising 8.8%, while Arista Networks was the biggest decliner with its stock declining 8.7%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 22.6%, while CenturyLink was the biggest decliner with its stock falling 28.8%.

Over the past six months, the Zacks Telecommunications Services industry declined 7.4%, while the S&P 500 fell 0.2%.

What’s Next in the Telecom Space?

In addition to the 5G deployments and product launches, all eyes will remain glued to how the administration continues to safeguard the interests of domestic telecom firms from Chinese threats.

These Stocks Are Poised to Soar Past the Pandemic

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