Verizon, AT&T Prepare To Face Off With Back-To-Back Earnings Releases

In the last year, top level telecom providers Verizon Communications Inc. VZ and AT&T Inc. T have been far outpaced by their lower cost competitors T-Mobile US Inc TMUS and Sprint Corp S.

The heavyweights have been diversifying their businesses, as the No. 3 and No. 4 carriers have largely looked to steal subscribers from the telecom giants through promotions and improved data offerings.

Verizon invested heavily into digital media with its notable $4.8 billion purchase of Yahoo! Inc. YHOO, while AT&T continues to seek out a merger with Time Warner Inc TWX. Both deals have yet to close.

As Verizon and AT&T look to release their fourth-quarter results back-to-back later this month, analysts are looking for both companies to return to healthy growth in 2017. Drexel Hamilton reiterated a Buy rating on Verizon with a $54 price target heading into its January 24 fourth-quarter earnings report. The firm maintains a Hold rating on AT&T as it waits for approval for its acquisition of Time Warner.

Verizon experienced a flat year of earnings as it has invested for future growth that could materialize in 2017. “We look for 2017 to see a return to growth, as its cornucopia of strategic investments in areas like internet of things and digital media start to bear fruit,” said Drexel Hamilton.

Verizon, AT&T 4Q Results ‘Likely To Be Boring’

Analysts are expecting uneventful 4Q wireless results as the top carriers have largely looked to maintain its high end customers instead of “slugging it out for market share,” according to Drexel Hamilton.

For Verizon’s 4Q, Drexel Hamilton is expecting “muted wireless results in what was a relatively quiet quarter, we expect revenue of $32.5 billion, EBITDA of $11.1 billion and EPS of $0.90 closing out a flat earnings year.”

At CES last week, Verizon introduced its BrandBuilder platform to support ads across display, video and mobile devices. The adtech industry is expected to hit $90 billion by 2020. This could be the calm before the storm for Verizon, as Drexel Hamilton expects its strategic investments to start contributing to the bottom line; analysts anticipate a reacceleration of earnings in 2017.

Drexel Hamilton expects AT&T’s boring fourth-quarter results to be overshadowed by early news on its DirecTV Now OTT product launched in November. “DTW Now is important as AT&T seeks to leverage its $65 billion acquisition of DirecTV in 2015 and move it beyond its linear TV roots.” Heading into the fourth-quarter release “3.0 mm wireless gross adds across business and consumer, representing 0.4 percent sub growth. We look for wireless revenue of $15.7 billion,” said Drexel Hamilton.