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Will Lower Consolidated Revenues Dent AT&T's (T) Q1 Earnings?

AT&T Inc. T is scheduled to report first-quarter 2021 results, before the opening bell, on Apr 22. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by a couple of cents. In the first quarter, the company is likely to have recorded lower revenues year over year due to the continued adverse impact from the coronavirus pandemic, foreign currency headwinds and steady infrastructure investments for 5G deployment across the country.

Factors at Play

In the first quarter, AT&T continued to expand its 5G network infrastructure and launched 5G+ service in select areas. The company’s 5G network currently covers more than 230 million users in 14,000 cities across the country and its 5G+ network is available in 38 cities. While 5G service offers broader coverage over sub-6 spectrum for people on the move, 5G+ offers coverage over mmWave spectrum for dense high-trafficked relatively smaller areas. 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. Such initiatives are likely to get reflected in the upcoming results.  

During the to-be-reported quarter, AT&T collaborated with Fortinet to expand its portfolio of Managed Security Services that will enable Secure Access Service Edge (SASE) for businesses. SASE combines software-defined wide area networking with essential security functions amid increased work-from-home options. The cybersecurity solution helps enterprises to enhance security, improve network performance and reduce costs. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

During the quarter, AT&T extended its FirstNet coverage in the country with the addition of purpose-built cell site and other network investments at various places. The FirstNet network presently covers more than 2.71 million square miles supporting in excess of 2 million connections nationwide. These facilities have enabled the company to expand public communication capabilities with dedicated broadband network for any emergency support. This is likely to have been accretive to earnings in the first quarter.

In the first quarter, AT&T extended its unlimited plans with 5G services at attractive price points. This, in turn, is likely to have resulted in lower churn rate during the quarter. Moreover, the company is witnessing a healthy traction in HBO Max streaming service with a steady increase in subscriber base in the quarter and is planning to expand it in 39 international markets in late June and additional 21 markets in the second half of 2021. These are likely to have positively impacted first-quarter performance.

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 in the quarter. AT&T has limited visibility into the extent of the impact of COVID-19. Moreover, high acquisition costs for mid-band spectrum are likely to have strained the exchequer.

The Zacks Consensus Estimate for total revenues of the company stands at $42,260 million, indicating a 1.2% decline from $42,779 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 77 cents per share. It had reported 84 cents in the year-earlier quarter.

Key Developments in Q1

In order to expand coverage and improve connectivity, AT&T acquired 80MHz of mid-band spectrum in the C-Band auction during the quarter for a total consideration of $27.4 billion. These airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in both rural and urban areas. AT&T intends to deploy 40MHz of this spectrum by the end of 2021.

The company inked an agreement with private equity firm TPG to divest its U.S. video business to reduce its debt burden. AT&T is likely to receive $7.6 billion from the transaction, while retaining stake within the newly formed DIRECTV. In addition, the company expects a reduction of about $300 million in depreciation and amortization expenses in each quarter until the completion of the transaction.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the first 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 -0.59%. 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-eps-surprise | AT&T Inc. Quote

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

Stocks to Consider

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

NETGEAR, Inc. NTGR is set to release quarterly numbers on Apr 21. It has an Earnings ESP of +1.52% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Verizon Communications Inc. VZ is +0.41% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Apr 21.

The Earnings ESP for T-Mobile US Inc. TMUS is +5.45% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on May 5.

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