Earnings Preview: Verizon And AT&T Report Q1 Results This Week

Two of the major companies in the telecom sector report earnings this week. Verizon Communications Inc. (NYSE: VZ) reports before market open on Tuesday, Apr. 24, and AT&T Inc. (NYSE: T) reports after market close on Wednesday, Apr. 25.

The telecom sector had a challenging 2017 and ended up being the worst performer for the year out of the S&P 500 (SPX) sectors. So far, 2018 hasn’t been any better for telecom companies and both T and VZ are down just over 10 percent year to date.

In recent news, several media outlets have reported that the U.S. Department of Justice is investigating VZ, T, as well as other major wireless carriers in the U.S. and mobile industry group GSM Association regarding the development of mobile standards over e-SIM, which allows customers to switch carriers without requiring physical SIM cards. The stocks barely budged when that news came out. 

VERIZON AND AT&T 2018 STOCK CHART. So far this year, telecom has continued to lag. The chart above shows Verizon (VZ, orange line) and AT&T (T, purple line) compared to the S&P 500 (SPX, teal line). Both VZ and T are down a little over 10 percent so far this year, whereas the SPX was only down 0.95 percent. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Verizon Earnings and Options Activity

The major carriers had experienced a bit of a pricing war over the past few years, which eventually culminated in VZ bringing back its unlimited data offering. The return of VZ’s unlimited data has been one of the main factors that analysts think have helped the company add smartphone subscribers in recent quarters. In Q4 2017, the company had 647,000 net smartphone adds and a churn rate of 0.77 percent.

For Q1, VZ is expected to report adjusted EPS of $1.11, up from $0.95 in Q1 2017, on revenue of $31.2 billion, according to third-party consensus estimates. Revenue is projected to increase 4.7 percent year over year.

Options traders have priced in about a 4.5 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 56^th percentile as of this morning, pretty much the middle of the road.

In short-term trading at the Apr. 27 weekly expiration, most of the activity on the call side has been ranging from the 48 strike price to the 50 strike. On the put side, there’s been heavier trading at the  46 strike, although there’s been a smattering of activity ranging from the 47 strike down to the 45 strike.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

AT&T Earnings and Options Activity

T has been caught up in trying to acquire Time Warner (TWX) for a while now. The $85.4 billion deal hit a roadblock when the Justice Department sued to block the merger in November 2017. Those proceedings are just starting to wrap up and the judge presiding over the case is expected to make a decision potentially as early as the end of May.

For Q1, T is expected to report adjusted EPS of $0.87, up from $0.74 in the prior-year quarter, on revenue of $39.4 billion, according to third-party consensus estimates. Revenue is projected to come in just above the $39.37 billion T reported in Q1 2017.

Options traders have priced in about a 4.3 percent stock move in either direction, according to the Market Maker Move indicator. Implied volatility is a little bit elevated and was at the 69^th percentile as of this morning.

In short-term trading at the Apr. 27 weekly expiration, calls have been active at the 35, 35.5 and 36 strike prices. On the put side, most of the recent trading has been concentrated at the 34 and 34.5 strikes.

Further out at the May 18 monthly expiration, the 35-strike call and the 36-strike call have been more heavily traded, whereas activity on the put side has been spread out across a range of strikes.

What’s Coming Up

In addition to reports from T and VZ, these are some of the other major companies reporting earnings this week:

• Caterpillar Inc. (NYSE: CAT) and Eli Lilly and Co. (NYSE: LLY) report before market open on Tuesday, Apr. 24
• Boeing Co (NYSE: BA) reports before the open on Wednesday, Apr. 25
• Twitter Inc. (NYSE: TWTR) reports before the open Wednesday, Apr. 25 and Facebook, Inc. (NASDAQ: FB) reports after the close the same day
• Ford Motor Company (NYSE: F) reports after market close Wednesday, Apr. 25 and General Motors Company (NYSE: GM) reports before the open Thursday, Apr. 26
• Amazon.com, Inc. (NASDAQ: AMZN), Intel Corporation (NASDAQ: INTC) and Microsoft Corporation (NASDAQ: MSFT) all report after market close Thursday, Apr. 26
• Chevron Corporation (NYSE: CVX) and Exxon Mobil Corporation (NYSE: XOM) report before the open Friday, Apr. 27

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