Assessing Telecomm ETFs Post Q4 Earnings Beat

The telecom sector recorded a robust performance over the past year, highlighted by the impressive gains of the S&P Telecom Select Industry Index, which outperformed the broader S&P 500. The telecom sector index has added about 31.98% over the past year, as compared to the S&P 500’s gain of 22.93%.

The sector’s outlook remains optimistic, driven by optimistic AI forecasts. Additionally, interest rate cuts throughout 2024, coupled with expectations of further reductions driven by President Trump's push for lower rates also creates an optimistic outlook for the sector. Both AT&T and Verizon Communications Inc. reported relatively healthy fourth-quarter results.

Below, we highlight fourth-quarter earnings results of these companies.

Earnings in Detail

Verizon Communications

On Jan. 24, before market open, Verizon Communications VZ reported relatively healthy fourth-quarter results, with the bottom and top lines beating the Zacks Consensus Estimate.

Shares of the company has gained about 2.8% after the earnings release (as of Jan. 27). VZ has a Value Score of A, along with Zacks Rank #3 (Hold). This indicates that investors should hold on to VZ shares with a strong value bias.

The company recorded consolidated postpaid net additions of 1,413,000 in the quarter, along with retail postpaid phone net additions of 568,000.

Net income in the quarter was $5.11 billion or $1.18 per share, on a GAAP basis, against a net loss of $2.57 billion or a loss of $0.64 per share in the prior-year quarter. The significant improvement was primarily attributable to a pre-tax gain from special items of $477 million in the reported quarter and a goodwill impairment charge of $5.84 billion in the year-ago quarter.

Excluding non-recurring items, quarterly adjusted earnings came in at $1.10 per share compared with $1.08 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny. For 2024, Verizon recorded a net income of $17.95 billion or $4.14 per share compared with $12.09 billion or $2.75 per share in 2023.

Total quarterly operating revenues improved by 1.6% to $35.68 billion, beating the Zacks Consensus Estimate of $35.4 billion, driven by growth in service revenues and higher wireless equipment revenues. For 2024, revenues improved 0.6% to $134.79 billion.

Total operating expenses decreased 18.2% year over year to $28.3 billion, while operating income improved to $7.42 billion.

For 2025, Verizon expects wireless service revenue growth of 2%-2.8%. and adjusted earnings to grow by 0-3%.

AT&T

On Jan. 27, before market open, AT&T T reported relatively healthy fourth-quarter 2024 results, with the bottom and top line beating the Zacks Consensus Estimate. AT&T recorded strong subscriber growth backed by a resilient business model and robust cash flow position, driven by a diligent execution of operational plans.

The market reacted positively to the quarterly results, with AT&T gaining about 6.8% on Jan. 27, after earnings release.

On a GAAP basis, AT&T reported a net income of $4.03 billion or $0.56 per share compared with $2.13 billion or $0.30 per share in the year-ago quarter. Excluding non-recurring items, adjusted earnings from continuing operations remained flat at $0.54 per share. Adjusted earnings for the fourth quarter beat the Zacks Consensus Estimate by 6 cents.

For 2024, AT&T reported a net income of $10.75 billion or $1.49 per share compared with $14.19 billion or $1.97 per share in 2023 owing to higher asset impairment and restructuring charges.

Quarterly GAAP operating revenues increased 0.9% year over year to $32.3 billion, largely due to higher Mobility service and equipment sales and Consumer Wireline revenues. Adjusted operating income decreased to $5.4 billion from $5.8 billion. AT&T witnessed solid subscriber momentum with 839,000 post-paid net additions.

While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based connectivity. The company is also aiming to reduce its debt burden by monetizing non-core assets. The company anticipates wireless service revenues to improve by 2%-3%, with adjusted earnings projected to be $1.97 and $2.07 per share.

ETFs in Focus

Below, we highlight a few ETFs for investors to gain exposure to the U.S. Telecom industry.

Vanguard Communication Services ETF (VOX)

Vanguard Communication Services ETF has gained 6.82% over the past three months and 33.1% over the past year.

Fidelity MSCI Communication Services Index ETF (FCOM)

Fidelity MSCI Communication Services Index ETF has gained 6.78% over the past three months and 33.19% over the past year.

iShares U.S. Telecommunications ETF (IYZ)

iShares U.S. Telecommunications ETF has gained 6.62% over the past three months and 20.54% over the past year.

SPDR S&P Telecom ETF (XTL)

SPDR S&P Telecom ETF has gained 6.75% over the past three months and 34.74% over the past year.

Invesco S&P 500 Equal Weight Communication Services ETF (RSPC)

Invesco S&P 500 Equal Weight Communication Services ETF has gained 4.91% over the past three months and 18.20% over the past year.

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