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Telecom Stock Roundup: Ubiquiti, CommScope Trump Earnings Estimates & More


In the past five trading days, the initial gains witnessed by telecom stocks were offset by subsequent decline as tariff war escalated with both the United States and China refusing to cede any ground. As the equity markets reeled under the likelihood of higher tariffs on additional Chinese imports and retaliatory measures from the communist nation, telecom stocks mirrored the broader market sentiments with uncertainty creeping in the sector.

Last-ditch attempts at trade negotiations between the U.S. treasury secretary Steven Mnuchin and trade representative Robert Lighthizer with a Chinese delegation led by vice premier Liu He failed to evoke favorable response from either side. As the bilateral trade talks fell flat, the Trump administration went ahead with its decision to increase tariffs on $200 billion worth of Chinese imports from 10% to 25%. This triggered retaliatory tariffs from China on U.S. imports worth $60 billion as it vouched to trade fire with fire. Tariffs ranging from 5-25% on 5,140 U.S. products are likely to take effect from June. Trump is also considering additional tariffs on remaining $325 billion worth of imports from China to rake in more revenues.

Meanwhile, the U.S. President has signed a long-awaited executive order to declare national emergency. Although the order was company and country agnostic, it effectively barred U.S. firms from either buying or selling any telecom equipment to firms like Huawei that are deemed to pose national security risks, virtually crippling its operations. The directive invoked the International Emergency Economic Powers Act, which bestowed the President with the authority to regulate commerce in view of the national emergency that threatened the country. The U.S. Commerce Department immediately added Huawei along with 70 of its affiliates to the Entity List – a list of entities that are ineligible to receive any item without the government approval. This is likely to act as a death knell for Huawei as it largely depends on U.S. firms for raw material supplies. Moreover, it garners significant revenues from the American shores by selling its finished products in the vast rural markets due to its low price. Whether the strategic move is aimed at seeking favorable trade concessions from China or preventing any further retaliatory tariffs from the communist nation remains to be seen.

Regarding company-specific news, quarterly earnings, divestment and patent validation primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1. Ubiquiti Networks, Inc. UBNT reported healthy third-quarter fiscal 2019 results with year-over-year increase in revenues and adjusted earnings. Both the bottom line and the top line surpassed the respective Zacks Consensus Estimate.

Non-GAAP net income came in at $88.9 million or $1.26 per share compared with $76 million or 98 cents per share, a year ago. The bottom line beat the Zacks Consensus Estimate by 20 cents. Quarterly revenues increased 13.8% year over year to $284.9 million, primarily driven by higher sales at Enterprise Technology business. The top line surpassed the consensus estimate of $257 million. (Read more: Ubiquiti Tops Q3 Earnings & Revenue Estimates, Up Y/Y)

2. CommScope Holding Company, Inc. COMM reported mixed first-quarter 2019 results wherein both adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate, but decreased year over year.

Non-GAAP adjusted earnings came in at 48 cents per share compared with 49 cents per share in the prior-year quarter. The bottom line exceeded the Zacks Consensus Estimate of 44 cents. Quarterly net sales decreased 1.9% year over year to $1,099.5 million as growth in the United States was more than offset by decline in sales in the Asia-Pacific region and EMEA (Europe, Middle East and Africa). The top line, however, beat the consensus estimate of $1,076 million. (Read more: CommScope Beats Q1 Earnings & Revenue Estimates)

3. TELUS Corporation TU reported solid first-quarter 2019 financial results with healthy performance across its wireless and wireline businesses. Both the top line and the bottom line increased year over year.

Adjusted net income was C$453 million or C$0.75 per share ($340.7 million or 56 cents) compared with C$435 million or C$0.73 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by a penny. Quarterly operating revenues increased 3.8% year over year to C$3,506 million ($2,636.7 million), driven by higher wireless and wireline data services revenue growth. The top line, however, lagged the consensus estimate of $2,641 million. (Read more: TELUS Q1 Earnings Beat Estimates, Revenues Increase Y/Y)

4. In a concerted effort to reduce its huge debt burden, Vodafone Group Plc VOD recently inked a definitive agreement to divest its New Zealand business to a global consortium of investors, subject to mandatory regulatory approvals.

Vodafone has agreed to offload its New Zealand operations for NZ$3.4 billion ($2.23 billion) to a joint venture comprising New Zealand-based Infratil Ltd and Canada's Brookfield Asset Management. At the same time, the company has decided to reduce its quarterly dividend payout to create sufficient financial headroom and focus more on the core European markets. Vodafone intends to reduce its quarterly dividend to 9 eurocents per share, representing a 40% year-over-year decrease. (Read more: Vodafone Sells New Zealand Unit, Cuts Dividend to Trim Debt)

5. Motorola Solutions, Inc. MSI has announced that the U.S. Patent and Trademark Office has upheld the validity of two of its patents that were challenged by Hytera Communications Corporation Limited.

In its ruling, the Patent Trial and Appeal Board validated Motorola’s U.S. Patent number 8,116,284 and 6,591,111, which relate to its time-division multiple access and group radio communication system technology, respectively. The favorable decision underscored the strength of Motorola’s IP rights and its relentless pursuit to protect its patents from any infringements and copyright violations. (Read more: Motorola Patents Validated by US Patent & Trademark Office)

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and during the past six months.

In the past five trading days, Sprint Corporation was the biggest gainer with its share price increasing 7.4% while Juniper Networks was the sole decliner with its stock down 3.7%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 36.4%, while Juniper was the biggest decliner with its shares falling 9.1%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 4.4% while the S&P 500 rallied 5.7%.

What’s Next in the Telecom Space?

In addition to product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China respond to the tariff war.

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