How Will Telecom ETFs React to Decent Q4 Earnings?

Increasing digitization trends and the virtual modes of communication continue to support the telecom sector amid the ongoing health crisis. The pandemic has been a blessing in disguise for the e-commerce industry as people continue are practicing social distancing and shopping online for all essentials, especially food item.

– Zacks

This has resulted in increasing demand for high-speed Internet connection and stable connectivity. Firms are working toward improving data traffic management as people continue to work from home and prefer limited and small gatherings.

Companies are also preparing their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. The introduction of 5G smartphones is likely to encourage telecom operators to make the 5G network more pervasive. Players in the sector are trying to redefine business plans to optimize efficiencies and operations and reduce costs while supporting employees and customers with several financial packages.

Let’s look at some big telecom earnings releases and see if these can impact ETFs exposed to the space.

Earnings in Focus

On Jan 26, AT&T Inc. T reported fourth-quarter 2021 results, where adjusted earnings and revenues beat the Zacks Consensus Estimate. Excluding non-recurring items, adjusted earnings in the quarter were 78 cents per share compared with 75 cents a year ago. The bottom line surpassed the Zacks Consensus Estimate by a couple of cents. Quarterly GAAP operating revenues slid 10.4% year over year to $40.96 billion and surpassed the Zacks Consensus Estimate of $40.42 billion.

For full-year 2022, AT&T expects adjusted earnings in the range of $3.10 to $3.15 per share. Revenues are likely to grow by low single digits. The company expects free cash flow in the vicinity of $23 billion.

On Jan 25, Verizon Communications Inc. VZ reported strong fourth-quarter 2021 adjusted earnings of $1.31 per share and beat the Zacks Consensus Estimate by 3 cents. Quarterly aggregate operating revenues declined 1.8% year over year to $34.07 billion. However, the metric surpassed the Zacks Consensus Estimate of $33.83 billion.

For 2022, Verizon expects organic service and other revenue growth at about 3%. On a reported basis, which includes the net impact of the sale of Verizon Media and the company’s ownership of TracFone, service and other revenue growth is expected between 1% and 1.5%. Reported wireless service revenue growth is projected in the range of 9-10%. Excluding the impact of the TracFone acquisition, wireless service revenues are expected to grow at least 3%.

On Feb 9, Lumen Technologies LUMN reported weak fourth-quarter 2021 results, with the bottom and the top line lagging the Zacks Consensus Estimate. Quarterly adjusted net income came in at $522 million or 51 cents per share compared with $453 million or 42 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 4 cents. Quarterly total revenues dropped 5.4% year over year to $4.85 billion. The top line lagged the consensus estimate of $4.86 billion.

For 2022, Lumen expects adjusted EBITDA in the range of $6.5-$6.7 billion. Free cash flow is projected between $1.6 billion and $1.8 billion. Capital expenditures are estimated between $3.2 billion and $3.4 billion. The effective income tax rate for the full year is estimated to be nearly 26%.

ETF Angle

In the current scenario, let’s discuss ETFs with relatively high exposure to the companies discussed.

iShares U.S. Telecommunications ETF IYZ

This ETF provides exposure to U.S. companies that provide telephone and internet products, services, and technologies. It has AUM of $358.7 million and charges 42 basis points (bps) as fees per year. It holds about 21 securities in its basket and puts about 22.7% weight in the in-focus companies. IYZ has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.

Vanguard Communication Services ETF VOX

This ETF is one of the most popular funds in the communication services space. It has AUM of $3.78 billion and charges 10 bps as fees per year. It comprises 113 holdings, with the above-mentioned companies taking about 9.9% of the fund. VOX has a Zacks ETF Rank #3, with a Medium-risk outlook (read: Stocks & ETFs to Gain From Final Nod for Infrastructure Bill).

Fidelity MSCI Communication Services Index ETF FCOM

This ETF provides exposure to the communication services sector in the U.S. equity market at a really low expense ratio. It has AUM of $766.8 million and charges 8 bps as fees per year. It holds about 114 securities in its basket, with the above-mentioned companies taking about 9.9% weight in the fund. FCOM has a Zacks ETF Rank #3 with a Medium-risk outlook (read: Meta Platforms Sinks Post Dismal Q4 Earnings: ETFs in Focus).

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AT&T Inc. (T): Free Stock Analysis Report
 
Verizon Communications Inc. (VZ): Free Stock Analysis Report
 
Vanguard Communication Services ETF (VOX): ETF Research Reports
 
Fidelity MSCI Communication Services Index ETF (FCOM): ETF Research Reports
 
iShares U.S. Telecommunications ETF (IYZ): ETF Research Reports
 
Lumen Technologies, Inc. (LUMN): Free Stock Analysis Report
 
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