Healthy Top-Line Growth to Drive AT&T's (T) Q1 Earnings

Zacks Equity Research

AT&T Inc. T is scheduled to report first-quarter 2019 results before the opening bell on Apr 24. The company is likely to record higher revenues on the back of solid performance from the Wireless business and incremental contribution from WarnerMedia assets and digital ad market.

Whether this will benefit its bottom line remains to be seen.

Top-Line Expansion

During the quarter, AT&T revamped its video content lineup at competitive prices. The strategic move is likely to increase its subscriber base and augment overall revenues as lower video packages are offset by higher digital ad revenues

AT&T is currently offering DirecTV Now Plus package with HBO and about 40 channels for as little as $50 a month, while DirecTV Now Max package will offer more than 50 channels (including HBO) for $70 per month. In addition to live TV channels, including local options, the DirecTV Now Max package will offer an extensive on-demand library of movies and TV shows.

The company has restructured its WarnerMedia business to focus more on video streaming service and fine-tuned its operating model with the evolving needs of customers. As part of the overhaul process of the newly minted WarnerMedia unit, AT&T has consolidated all its affiliates and sales groups under a unified platform, with its units organized under entertainment networks, live programming, content production and affiliate and advertising sales. AT&T has also reorganized the management structure within WarnerMedia. All these inititaives are likely to translate into incremental revenues during the quarter.

In addition, AT&T is giving a new dimension to its business model by reinventing advertising for the next generation. Its advertising unit Xandr and WarnerMedia’s Turner business has collaborated to offer enriching advertising content and data analysis to customers. This will improve the relevancy of advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases, thereby augmenting its overall first-quarter revenues.

AT&T is currently focusing more on the European markets with strategic hires as it aims to concentrate on the digital ad market. Europe has been a key market for digital advertisers, and AT&T aims to tap this huge potential to foster growth within the region and boost client support and reach. With wide expansion plans, including programmatic media trading and marketplace tools, AppNexus’ enterprise technology and advertising marketplace will likely help diversified firms better reach consumers and monetize their content.

Buoyed by such tailwinds, total revenues for the company are expected to be $45,093 million compared with $38,038 million reported in the prior-year quarter.

Earnings Whispers

Our proven model conclusively shows that AT&T is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.29%, with the former pegged at 86 cents and the latter at 85 cents. 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 and EPS Surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

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

CommScope Holding Company, Inc. COMM is slated to release quarterly numbers on May 7. It has an Earnings ESP of +1.89% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Juniper Networks, Inc. JNPR is scheduled to release results on Apr 25. The company has an Earnings ESP of +10.00% and has a Zacks Rank #2.

The Earnings ESP for Acacia Communications, Inc. ACIA is +5.73% and it carries a Zacks Rank of 2. The company is slated to report quarterly numbers on May 2.

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