3 Niche Manufacturers Tapping Into Specialized Demand

It has been about a month since the last earnings report for AT&T (T). Shares have added about 3.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is AT&T due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AT&T Beats on Q3 Earnings, Revenues Miss Despite Wireless Traction

AT&T reported relatively healthy third-quarter 2024 results with adjusted earnings beating the Zacks Consensus Estimate but the top line missing the same.

The company witnessed solid wireless traction and customer additions, which were partially offset by lower demand for legacy voice and data services. 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. AT&T expects to continue investing in key areas of 5G and fiber and adjust its business according to the evolving market scenario to fuel long-term growth.

Net Income

On a GAAP basis, AT&T reported a loss of $226 million or a loss of 3 cents per share against net income of $3.4 billion or 48 cents per share in the year-ago quarter. The decline was primarily attributable to a $4.4 billion non-cash goodwill impairment charge during the quarter.

Excluding non-recurring items, adjusted earnings from continuing operations were 60 cents per share compared with 64 cents in the year-ago quarter. Adjusted earnings for the third quarter beat the Zacks Consensus Estimate by a penny.

Quarter Details

Quarterly GAAP operating revenues decreased marginally by 0.5% year over year to $30.21 billion, largely due to declining Mobility equipment sales and lower Business Wireline revenues, partially offset by higher Mobility Service and Consumer Wireline revenues. The top line fell short of the consensus mark of $30.55 billion.

Adjusted operating income remained flat at $6.5 billion for respective adjusted operating income margins of 21.6% and 21.5%. Adjusted EBITDA improved to $11.6 billion from $11.2 billion.

AT&T witnessed solid subscriber momentum with 429,000 post-paid net additions. This included 403,000 postpaid wireless phone additions. Postpaid churn was 0.78%, while postpaid phone-only average revenue per user (ARPU) increased 1.9% year over year to $57.07 due to improved international roaming, pricing actions and a transition to higher-priced unlimited plans.

Segmental Performance

Communications: Total segment operating revenues were $29.07 billion, down from $29.24 billion, as improvement in the Mobility business (up 1.7% to $21.05 billion) and Consumer Wireline (up 2.6% to $3.42 billion) was more than offset by a decline in Business Wireline (down 11.8% to $4.61 billion). The segment revenues missed our estimates of $29.24 billion.

Service revenues from the Mobility unit improved 4% to $16.54 billion, driven by solid subscriber and postpaid ARPU gains, while equipment revenues decreased 5.7% year over year to $4.51 billion due to lower sales volume. Revenues from the Consumer Wireline business were up due to a gain in fiber broadband. AT&T recorded net fiber additions of 226,000, while Internet Air added 135,000 subscribers during the quarter.

Revenues from Business Wireline were down due to lower demand for legacy voice and data services as customers shifted to more advanced IP-based offerings. Total segment operating income declined 1.6% to $7.2 billion, with operating margins of 24.6% (down 30 bps). Adjusted EBITDA was $11.97 billion compared with $11.62 billion in the year-ago quarter.

Latin America: Total operating revenues were $1.02 billion, up 3% year over year, due to growth in equipment revenues and higher sales. Adjusted EBITDA improved to $168 million from $155 million in the year-ago quarter for respective margins of 16.4% and 15.6%.

Cash Flow & Liquidity

For the first nine months of 2024, AT&T generated $26.87 billion of cash from operations compared with $26.94 billion in the prior-year period. Free cash flow for the quarter was $5.09 billion compared with $5.18 billion in the year-ago quarter. As of Sept. 30, 2024, AT&T had $2.59 billion of cash and cash equivalents with long-term debt of $126.37 billion. Net debt to adjusted EBITDA was about 2.82X.

Guidance

While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based connectivity, along with an expanded reach of software-based entertainment platforms. For fiscal 2024, AT&T has reiterated its previous guidance. Wireless service revenues are likely to improve in the vicinity of 3%, while broadband revenues are anticipated to be up in excess of 7%.

Adjusted earnings are projected to be within $2.15 and $2.25 per share. Free cash flow in 2024 is expected to be within $17-$18 billion due to cost savings. The company is also aiming to reduce its debt burden by monetizing non-core assets. AT&T firmly remains on track to pass more than 30 million fiber locations by the end of 2025.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -5.05% due to these changes.

VGM Scores

Currently, AT&T has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AT&T has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

AT&T is part of the Zacks Wireless National industry. Over the past month, Verizon Communications (VZ), a stock from the same industry, has gained 1.5%. The company reported its results for the quarter ended September 2024 more than a month ago.

Verizon reported revenues of $33.33 billion in the last reported quarter, representing a year-over-year change of 0%. EPS of $1.19 for the same period compares with $1.22 a year ago.

Verizon is expected to post earnings of $1.11 per share for the current quarter, representing a year-over-year change of +2.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.5%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Verizon. Also, the stock has a VGM Score of B.

Zacks Investment Research

The dollar index today is up +0.54% and climbed to a 2-year high. Today’s weaker-than-expected Eurozone economic news signals a struggling European economy that is weighing on the euro to the dollar’s benefit. The dollar extended its gains after the US Nov S&P manufacturing and service PMIs increased. Gains in the dollar were limited after the University of Michigan US Nov consumer sentiment index unexpectedly declined.

The US Nov S&P manufacturing PMI rose +0.3 to a 4-month high of 48.8, slightly weaker than expectations of 48.9. The Nov S&P services PMI rose +2.0 to 57.0, stronger than expectations of no change at 55.0 and the strongest pace of expansion in 2-1/2 years.

The University of Michigan US Nov consumer sentiment index unexpectedly fell -1.2 to 71.8, weaker than expectations of an increase to 73.9.

The markets are discounting the chances at 56% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD today is up by +0.20%. The yen today is posting moderate losses after the Nikkei Stock index closed higher, which curbed safe-haven demand for the yen. Also, recent comments from BOJ Governor Ueda signaled the BOJ is in no hurry to raise interest rates, a negative factor for the yen. Losses in the yen were limited after today’s news that Japan’s National Oct core CPI rose more than expected at the fastest pace in 6 months, a hawkish factor for BOJ policy. Also, lower T-note yields today are supportive of the yen. In addition, safe-haven demand for the yen remains strong due to the escalation of the Ukraine-Russian war. Today’s Japanese Nov PMI news was mixed for the yen.

Japan Oct national CPI eased to +2.3% y/y from +2.5% y/y in Sep, right on expectations. However, Oct national CPI ex-fresh food and energy rose +2.3% y/y, stronger than expectations of +2.2% y/y and the largest increase in 6 months.

The Japan Nov Jibun Bank manufacturing PMI fell -0.2 to 49.0. However, the Nov Jibun Bank services PMI rose +0.5 to 50.2.

December gold (GCZ24) today is up +23.70 (+0.89%), and December silver (SIZ24) is up +0.337 (+1.09%). Precious metals today are moderately higher, with gold climbing to a 2-week high. Escalating tensions in the Ukraine-Russia conflict have boosted safe-haven demand for precious metals after Ukraine said Russia launched a new hypersonic ballistic missile into the city of Dnipro. Also, demand for gold as a store of value increased today after weaker-than-expected Eurozone economic news boosted the chances for a larger 50 bp rate cut by the ECB next month.

Today’s rally in the dollar index to a 2-year high was bearish for metals prices. Silver prices were also undercut after the Eurozone Nov S&P manufacturing PMI fell more than expected, and after Q3 German GDP was revised lower, negative factors for industrial metals demand.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

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DIRECTV announced Friday it would terminate its agreement to acquire EchoStar Corp’s video distribution business, DISH DBS.

The decision follows DISH DBS noteholders’ refusal to accept EchoStar’s proposed Exchange Debt Offer Terms, a critical condition for the deal to proceed.

EchoStar stock tanked after the update.

Also Read: Boeing Secures $2.38 Billion US Air Force Deal for Advanced KC-46A Tankers

DirecTV CEO Bill Morrow said “the proposed Exchange Terms were necessary to protect DirecTV’s balance sheet and our operational flexibility.”

DirecTV agreed to acquire EchoStar’s video business for $1 and assume Dish DBS’s net debt. The companies launched an exchange offer for five Dish DBS note series totaling approximately $9.75 billion in face value.

DirecTV plans to continue investing in next-generation streaming technologies and developing new packaging options integrating live TV with direct-to-consumer platforms. The company aims to provide customers with enhanced flexibility and tailored content options that align with evolving viewer preferences.

The termination of the DISH acquisition does not impact TPG’s plan to purchase the remaining 70% stake in DirecTV from AT&T Inc , which remains scheduled to close in the second half of 2025. This strategic move is expected to strengthen DirecTV’s market positioning further.

EchoStar reported a third-quarter loss of 52 cents per share, missing analysts’ expected loss of 37 cents. Revenue came in at $3.89 billion, a 5.3%, falling short of the $3.909 billion consensus estimate.

During the quarter, net Pay-TV subscribers declined by 43,000, while Sling TV added 145,000 new users. The company closed the period with 8.03 million Pay-TV subscribers, including 5.89 million for DISH TV and 2.14 million for Sling TV.

Price Action: EchoStar’s shares are trading lower by 3% to $22.86 at last check Friday.

Also Read:

• Disney Takes on Netflix With High-Impact Originals in Asia

Image via DirecTV

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.

The popular research service can help you become a smarter, more self-assured investor, giving you access to daily updates of the Zacks Rank and Zacks Industry Rank, the Zacks #1 Rank List, Equity Research reports, and Premium stock screens.

It also includes access to the Zacks Style Scores.

What are the Zacks Style Scores?

The Zacks Style Scores, developed alongside the Zacks Rank, are complementary indicators that rate stocks based on three widely-followed investing methodologies; they also help investors pick stocks with the best chances of beating the market over the next 30 days.

Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Finding good stocks at good prices, and discovering which companies are trading under their true value, are what value investors like to focus on. So, the Value Style Score takes into account ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to highlight the most attractive and discounted stocks.

Growth Score

Growth investors, on the other hand, are more concerned with a company's financial strength and health, and its future outlook. The Growth Style Score examines things like projected and historic earnings, sales, and cash flow to find stocks that will experience sustainable growth over time.

Momentum Score

Momentum traders and investors live by the saying "the trend is your friend." This investing style is all about taking advantage of upward or downward trends in a stock's price or earnings outlook. Employing factors like one-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to build a position in high-momentum stocks.

VGM Score

If you want a combination of all three Style Scores, then the VGM Score will be your friend. It rates each stock on their combined weighted styles, helping you find the companies with the most attractive value, best growth forecast, and most promising momentum. It's also one of the best indicators to use with the Zacks Rank.

How Style Scores Work with the Zacks Rank

A proprietary stock-rating model, the Zacks Rank utilizes the power of earnings estimate revisions, or changes to a company's earnings outlook, to help investors create a successful portfolio.

It's highly successful, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988. That's more than double the S&P 500. But because of the large number of stocks we rate, there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

With more than 800 top-rated stocks to choose from, it can certainly feel overwhelming to pick the ones that are right for you and your investing journey.

That's where the Style Scores come in.

To have the best chance of big returns, you'll want to always consider stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B, which will give you the highest probability of success. If you're looking at stocks with a #3 (Hold) rank, it's important they have Scores of A or B as well to ensure as much upside potential as possible.

Since the Scores were created to work together with the Zacks Rank, the direction of a stock's earnings estimate revisions should be a key factor when choosing which stocks to buy.

For instance, a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one that boasts Scores of A and B, still has a downward-trending earnings forecast, and a much greater likelihood its share price will decline as well.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Watts Water (WTS)

Headquartered in North Andover, MA, Watts Water Technologies, Inc. designs, manufactures and sells various water safety and flow control products to promote safety, energy efficiency, and water conservation for commercial and residential buildings. The company reports its business under three geographic segments: Americas (73.6% of total revenues in third-quarter 2024), Europe (19.7%) and APMEA consisting of Asia-Pacific, the Middle East and Africa (6.7%).

WTS is a #3 (Hold) on the Zacks Rank, with a VGM Score of B.

Momentum investors should take note of this Computer and Technology stock. WTS has a Momentum Style Score of B, and shares are up 6% over the past four weeks.

For fiscal 2024, two analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.03 to $8.74 per share. WTS boasts an average earnings surprise of 7.1%.

With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, WTS should be on investors' short list.

Zacks Investment Research

The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) made its debut on 10/18/2012, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Large Cap Value category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Because the fund has amassed over $3.53 billion, this makes it one of the average sized ETFs in the Style Box - Large Cap Value. SPHD is managed by Invesco. SPHD, before fees and expenses, seeks to match the performance of the S&P 500 Low Volatility High Dividend Index.

The S&P 500 Low Volatility High Dividend Index comprises of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.30%.

SPHD's 12-month trailing dividend yield is 3.30%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For SPHD, it has heaviest allocation in the Utilities sector --about 20% of the portfolio --while Consumer Staples and Healthcare round out the top three.

When you look at individual holdings, Altria Group Inc (MO) accounts for about 3.05% of the fund's total assets, followed by Bristol-Myers Squibb Co (BMY) and At&t Inc (T).

The top 10 holdings account for about 26.34% of total assets under management.

Performance and Risk

Year-to-date, the Invesco S&P 500 High Dividend Low Volatility ETF has gained about 23.51% so far, and was up about 33.03% over the last 12 months (as of 11/22/2024). SPHD has traded between $39.71 and $51.07 in this past 52-week period.

The fund has a beta of 0.87 and standard deviation of 14.59% for the trailing three-year period, which makes SPHD a medium risk choice in this particular space. With about 52 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco S&P 500 High Dividend Low Volatility ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

Schwab U.S. Dividend Equity ETF (SCHD) tracks Dow Jones U.S. Dividend 100 Index and the Vanguard Value ETF (VTV) tracks CRSP U.S. Large Cap Value Index. Schwab U.S. Dividend Equity ETF has $66.20 billion in assets, Vanguard Value ETF has $132.22 billion. SCHD has an expense ratio of 0.06% and VTV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Value.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research