AT&T, Verizon Q2 earnings on deck: What to expect

When AT&T (T) posts second quarter earnings on Wednesday, investors would keep an eye on the U.S. telecom provider’s fiber growth and wireless subscribers.

Wall Street expects the company to post EPS of $0.59, implying a rise of 9.3%, while revenue is expected to rise 3% to $31.81B during the quarter.

Texas-based AT&T benefited from consumers tendency to choose the company’s bundling packages combining fiber and wireless plans. Adding to that, the company’s strategy to roll out a pricing strategy that trimmed costs for mid-tier plans while raising rates for its lowest and highest tiers helped it to lure customers.

Earlier in April, AT&T added more wireless subscribers than expected in the first quarter. However, a decline in legacy revenue and pressure on free cash flow overshadowed gains in internet and postpaid phone revenue. Over the last two years, AT&T has beaten EPS estimates 75% of the time and has beaten revenue estimates 63% of the time.

“AT&T’s growth plans seem to have real potential, and I fully expect AT&T will report solid numbers Wednesday,” said Seeking Alpha analyst Max Greve

Wells Fargo analyst Steven Cahall said AT&T's fiber business remains a key growth opportunity but noted that the telecom company's fiber growth may not be enough to offset rising wireless competition from satellite connectivity.

Seeking Alpha and Wall Street analysts rated the stock a Buy, while Seeking Alpha’s Quant ratings consider it a Hold. The stock has lost 12% so far this year.

Over the last three months, AT&T’s EPS estimates have seen seven upward revisions, compared to six downward revisions. Revenue estimates have seen eight upward revisions versus five downward moves.

Rival Verizon (VZ) is also set to post quarterly earnings on July 24, with Wall Street expecting the company to post EPS of $1.27, on revenue of $35.11 billion, implying a rise of nearly 2% during the quarter.

Despite competition from AT&T and T-Mobile, the company’s first-quarter results reflected better-than-expected profits and postpaid phone additions, underscoring the company’s successful efforts to lure in new wireless customers.

Verizon is also making several cost-reduction efforts, with the company saying earlier this month that it will sell 274 company-owned retail locations and eliminate about 500 corporate positions, affecting around 3,000 retail and corporate employees. Verizon cut 13,000 jobs in November, its largest-ever workforce reduction, and carried out a smaller round of layoffs in May. 

“Churn and margins are other things I’d look at. That’s because the new CEO is prioritizing wireless service satisfaction over subsidizing plans with free phone offers. This could result in lower churn while continuing to raise profitability momentum for VZ at the same time,” said a recent Seeking Alpha analysis by Gen Alpha, adding that looking ahead to Q2 results, the most important thing is to look for progress on retail postpaid phone net adds. 

Over the last two years, Verizon has beaten EPS estimates 100% of the time and has beaten revenue estimates 50% of the time. Over the last three months, EPS estimates have seen seven upward revisions and four downward revisions. Revenue estimates have seen no upward revisions and 12 downward moves.

Verizon stock has gained nearly 6% so far this year, underperforming the over 8% rise in the broader S&P 500 Index.