Telecom stocks have outperformed the market year to date. Above, a wireless tower.
Dreamstime
Telecom stocks have been on a tear in 2022. The next round of earnings reports for the sector should offer clues on whether the streak will continue. Subscriber additions and revenue will be focus points for investors.
AT&T (ticker: T), Verizon Communications (VZ), and T-Mobile US (TMUS) will report their first-quarter results starting on Thursday. The telecom giants are pushing their next-generation 5G services and investing in new broadband networks—promising faster growth in the coming years.
Telecom stocks are behind the market over the past year, but have outperformed so far in 2022. The companies’ relatively cheap valuations and defensive business models have become more attractive as interest rates rise and concerns mount over slowing economic growth. T-Mobile has surged 15% year to date, AT&T has returned 8.5% including dividends, and Verizon has returned 6%. That compares with a 7.5% loss for the S&P 500 this year.
It should be a good quarter for the industry as a whole. The possibility that subscriber growth will slow significantly, forcing companies to offer discounts—a concern late last year—now seems unlikely to be a problem for at least a few quarters.
“This quarter will be important for buttressing confidence in the wireless industry,” wrote BofA Securities’ David Barden in a recent report. “There is a growing realization that strong fundamentals such as low unemployment, a robust economy, and record business formations will continue to support growth in the near-term.”
What to watch at AT&T: AT&T releases its first-quarter results on Thursday morning before the market opens. The company is expected to report net income of $4.5 billion, or 61 cents per share after adjustments for one-time factors, on $38.2 billion in revenue. On average, analysts forecast adjusted earnings before interest, taxes, depreciation, and amortization—or Ebitda—of $11.9 billion and free cash flow of $5.2 billion.
All of those figures include WarnerMedia , which AT&T spun off just after the first quarter ended. Accordingly, there will be more focus on AT&T’s communications segment in the period, which is essentially the post-spinoff company. Revenue there is forecast to be $28.2 billion, about flat year over year, and adjusted Ebitda is expected to be $11.8 billion, up 3%.
The Wall Street consensus is for postpaid net additions—an all-important metric for wireless companies—of about 573,000. That would compare with an average of 1.1 million postpaid net adds per quarter during 2021, which was a blockbuster year for customer growth in the U.S. wireless industry.
AT&T has focused on customer retention in its promotions lately, offering generous device subsidies and upgrade offers to new and existing customers alike. Investors will want to see that reflected in its subscriber numbers on Thursday. They’ll also be watching for any impact on AT&T’s average revenue per user, or ARPU. That is expected to be about $53 for postpaid phones in the first quarter, which would be down 2% year over year.
Beyond 5G wireless, the telecom-only AT&T’s other major focus is expanding its fiber-optic broadband network. Net adds there are expected to be about 288,000.
Key points for Verizon: Verizon is next up, reporting on Friday morning. Analysts expect $1.34 in earnings per share, which would be up 3 cents from the first quarter of last year. Adjusted Ebitda and net income are forecast to come in at $12.2 billion and $5.7 billion, respectively. Wall Street expects revenue to be $33.7 billion, up about 2%.
Verizon has been less promotional than competitors, instead focusing on driving revenue higher by increasing average revenue per account, or ARPA. That means stepping subscribers up to higher-priced plans and selling them more services. Analysts are forecasting a net loss of almost 50,000 postpaid wireless subscribers on average, but Wall Street sees postpaid ARPA increasing 12% year over year, to $135.40. Verizon management already has said to expect faster quarterly growth in subscribers for fixed-wireless access, or FWA—essentially home broadband delivered over a 5G network.
Watching T-Mobile. T-Mobile, a company that tends to offer conservative forecasts and increase them as the year goes on, reports on April 27 before the market opens. Given that approach, so-called beat-and-raise quarters are almost the rule.
After two years of integrating Sprint’s operations, network, and customer base, 2022 should be the year when the merger begins to really pay off for T-Mobile. Related costs should begin to decline and free cash flow should increase. Management has hinted at the possibility of significant share buybacks in coming years, so investors will be eager for news on that front.
For the first three months of 2022, analysts are forecasting 44 cents in earnings per share on $20.2 billion in revenue. Ebitda and net income are forecast to come in at $6.8 billion and $278 million, respectively.
Wall Street expects T-Mobile to add a net 1.1 million postpaid subscribers in the quarter, and for postpaid phone ARPU to hold about steady at $47.70. T-Mobile said Wednesday that it had reached 1 million FWA subscribers earlier this month, up from 646,000 at the end of 2021.
Write to Nicholas Jasinski at [email protected]
