Verizon, AT&T Q3 earnings on deck: Focus on subscriber number, spending plans

When Verizon (NYSE:VZ) and AT&T (NYSE:T) report third-quarter results this week, investors will focus on improvement in subscribers’ numbers along with sales growth and future spending plans for the U.S. telecom firms.

Wall Street expects the New York-based Verizon to post EPS of $1.18, implying a fall of 3%, while revenue is expected to rise nearly 1% at $33.42 billion.

Verizon experienced a fall in wireless subscribers and fewer phone upgrades during its second quarter, as price-conscious customers are sticking to their older phones longer during a tough economy. The company blamed the shutdown of a federal subsidy called Affordable Connectivity Program (ACP) for the majority of the prepaid net losses.

AT&T, in July, also posted revenue below Wall Street expectation and said slower upgrade affected the company, even though it “set a strong tone for the back half of the year.”

Despite these headwinds, some analysts maintain a positive view on U.S. telcos ahead of the third quarter, thanks to healthy subscriber loading dynamics and positive pricing trends.

Scotiabank analyst Maher Yaghi expects Verizon to report 220K postpaid phone net additions during the third quarter, with the consumer segment returning to growth after two quarters of share loss.

“On the telecom side, the quarter itself may not have any surprises on sub trends and continued low upgrade rates should remain supportive of margins and FCF outside of usual seasonal headwinds,” said Barclays analyst Kannan Venkateshwar.

Rival AT&T (T) is expected to post EPS of $0.57, implying a decline of 10.9%, while revenue is expected to rise marginally to $30.45 billion.

Yaghi forecasts AT&T to add 450K postpaid phone subs with ARPU growth of 1.0% and “industry-leading” wireless postpaid phone churn.

“We believe investors are starting to put more focus on FCF generation vs. EBITDA as the industry undergoes a transformation with respect to capital spending plans and new financing structures to help fund future investments,” Scotiabank said.

Over the last two years, both Verizon and AT&T have beaten EPS estimates 75% of the time and have beaten revenue estimates 50% of the time.

Both Seeking Alpha and Wall Street analysts are bullish and rated Verizon and AT&T a Buy. Seeking Alpha’s Quant ratings consider the stocks a Hold.

Over the last 3 months, Verizon EPS estimates have seen no upward revisions, compared to nine downward, while revenue estimates have seen 2 upward revisions and 9 downward. Meanwhile, Dallas, Texas-based AT&T’s EPS estimates have seen three upward revisions and 11 downward, while revenue estimates have been revised upward four times versus 10 downward moves.

Verizon stock has gained over 16% so far this year, while AT&T rose nearly 30%. This is in comparison to the nearly 23% rise in the broader S&P500 Index.