5G has been in the spotlight over the past couple weeks as the big telecom carriers, namely Verizon Communications (VZ), T-Mobile (TMUS) and AT&T (T) recently released their latest quarterly results.
I’ve spoken extensively about the telecom giants in regard to their involvement in 5G. Today, I’d like to take a closer look at how 5G is hitting their top and bottom lines. I’ll also share the company I expect will surge along with 5G’s rollout, given its superior fundamentals. I’ll give you a hint – it’s not Verizon, T-Mobile or AT&T.
Verizon Communications Inc. (VZ): Q4 Earnings Announced on Tuesday, January 25
Verizon posted a strong fourth quarter, announcing adjusted earnings of $1.31 per share on revenue of $34.1 billion. Earnings rose 8.3% year-over-year while revenue dropped 1.8% from last year’s $34.7 billion in the same quarter. Analysts were expecting adjusted earnings of $1.28 per share on revenue of $34.1 billion, so VZ posted a 2.3% earnings surprise and in-line revenue results.
Also during the fourth quarter, Verizon completed its acquisition of TracFone, a U.S. wireless services company with 20 million subscribers. The acquisition will bring Verizon customers new technology, expanded 5G service and more international calling and roaming choices.
But the quarter was not without its struggles. Verizon has had to compete with other major carriers like AT&T and T-Mobile and has suffered several major drops in the past few months. And T-Mobile has had greater success in rolling out 5G. slipped 3.5% the day after earnings were announced.
CEO Hans Vestberg said: “We are laser focused on executing our 5G strategy and providing value to our customers, shareholders, employees, and society, as 2022 will be the most exciting year yet for Verizon.”
The company did roll out several new services last month, including its Business Unlimited Data Device Plan that allows businesses greater 5G coverage and more gigabytes.
Its new C-Band spectrum allows faster coverage and expanded bandwidth, all improving the functions of 5G.
Looking to the first quarter, analysts anticipate earnings of $1.38 per share on revenue of $33.18 billion.
As you can see in the Report Card above, Verizon receives a B-rating for its Total grade, making the stock a “Buy” right now.
T-Mobile (TMUS): Q4 Earnings Announced on Wednesday, February 2
T-Mobile has been a pioneer in the 5G boom. Speedtest Intelligence reported that T-Mobile’s 5G speed outshines those of AT&T and Verizon’s by nearly 50%. T-Mobile has outperformed the others in 5G availability, reach, and download and upload speed.
And while AT&T and Verizon have been frustrated by FAA regulations for 5G around certain airports, T-Mobile customers have not had to worry about it. The company has been using mid-band coverage since 2020 and management has said it’s working on building in the C-Band in 2023, when the problems should be well resolved.
In 2021, the company added 2.9 million phone subscribers and said it aims for 5G to reach 300 million by 2023. It also reported that its low-band 5G service covers 310 million people.
T-Mobile reported adjusted earnings of $1.10 per share, an 83% increase year-over-year from $0.60 per share. Earnings beat analysts’ estimates of $0.09 – that’s a whopping 1,179% earnings surprise! Revenue fell short of analysts’ estimates at a reported $20.79 billion, though revenue was still up 2% year-over-year. For the next quarter, analysts estimate earnings of $0.72 on revenue of $20.29 billion.
The stock surged 10% after earnings were announced.
Despite the strong results, my Portfolio Grader gives T-Mobile a measly D-rating – and for good reason.
As you can see, the company holds a D-rating almost across the board. The only bright spot in the Report Card is its B-rating for earnings surprises. Overall, though, T-Mobile is a “Sell” at the moment.
AT&T Inc. (T): Q4 Earnings Announced on Wednesday, January 26
AT&T announced better-than-expected earnings for its fourth quarter. Earnings rose 4% year-over-year to $0.78 per share, up from earnings of $0.75 per share in the same quarter a year ago. Analysts were calling for earnings of $0.76 per share, so the company topped earnings estimates by 2.6%. Revenue dropped 11% year-over-year to $41 billion. Looking to the first quarter, analysts estimate earnings of $0.79 per share on revenue of $38.29 billion.
The company recently announced its spin off of Warner Media in a $43 billion deal to merge the entity with Discovery.
For shareholders, this means every share of AT&T gets 0.24 shares of Warner Bros Discovery. AT&T shareholders will get 71% of Warner Bros Discovery company. The company lowered its dividend from $2.08 per share to $1.11.
This spinoff allows AT&T to focus solely on its telecom operations. It will center on 5G wireless and fiber-optic broadband technology rather than put its money into more competition with streaming giants like Netflix and Disney.
“We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent,” CEO John Stankey said in a statement.
News of the spinoff on Tuesday sent the stock 4% lower.
AT&T plans to expand its 5G network to 200 million people by the end of 2023 and it needs all available resources to do so.
So, how does AT&T stack up in Portfolio Grader?
You can see that my Portfolio Grader gives the stock a Total Grade of ‘C.’
My Under-the-Radar 5G Play
Though these wireless companies posted good earnings and are clearly benefitting from the 5G wave, some of their fundamentals are a little troubling. Verizon and AT&T earned an F-rating in my Portfolio Grader for their sales growth. T-Mobile’s sales growth is slightly better, as it holds a D-rating. T-Mobile’s operating margin growth, earnings growth and earnings momentum are also weak. With the exception of Verizon, which earns a B-rating for its Quantitative Grade, institutional buying pressure is slowing for T-Mobile and AT&T, as evidenced by their D- and C-rating, respectively.
So, if you’re looking to these wireless companies as a high-growth 5G play, there are better opportunities with stronger fundamentals.
Personally, I believe that opportunity lies in Clearfield, Inc. (CLFD). It’s an under-the-radar “pick and shovels” play, as the company is directly in line to profit from the 5G boom.
Clearfield Inc (CLFD): Q1 Earnings Announced on Thursday, January 27
5G’s popularity lends itself to higher demand for broadband and fiber infrastructure. That’s exactly what CLFD does – designs and manufactures solutions towards bandwidth, infrastructure and faster networks.
The company’s “fiber to anywhere” platform was designed to not only meet the needs of broadband service providers, but also to cut down on the costs associated with the deployment, management, protection and scalability of fiber-optic networks. Clearfield’s game-changing Clearview Cassette is the building block of its FieldSmart product portfolio of cabinets, enclosures, panels and wall boxes. All of which are designed with flexibility, service and network migration capabilities.
With 5G spreading across the country, from urban city centers to rural areas, it’s not surprising that Clearfield has seen strong demand for its products – or that it posted record results recently.
The company achieved record results for its first quarter in fiscal year 2022. First-quarter revenue soared 89% year-over-year to $51 million, topping expectations for $41.27 million and causing the stock to jump 18% after the earnings beat – by far the biggest jump out of the 5G stocks.
First-quarter earnings surged 228% year-over-year to $10.4 million, or $0.75 per share, which compared to earnings of $3.2 million, or $0.23 per share, in the same quarter a year ago. Analysts were only expecting first-quarter earnings of $0.44 per share, so Clearfield crushed estimates by 70.5%.
Company management commented: “We remain very optimistic about Clearfield’s growth potential as the demand for high-speed broadband, especially fiber-led broadband, continues to be very robust.”
Clearfield increased its outlook for fiscal year 2022. The company now expects total sales between $176 million and $183 million, which would represent 25% to 30% year-over-year growth.
The stock jumped 20% after earnings posted, by far the biggest post-earnings gain of any of the companies.
The company is also B-rated in my Portfolio Grader.
I should note that it has a superior Report Card compared to the other 5G stocks. With an A-rating in Sales Growth, compared to the D- and F- ratings from the telecom giants, as well as A grades in Earnings Momentum and Return on Equity (again beating the other 5G giants), CLFD becomes the obvious play.
And I’m pleased to say I found it early for my Accelerated Profits subscribers back in September 2020.
When I first recommended CLFD, it had achieved stunning growth in its third quarter in fiscal year 2020. Specifically, the company achieved total revenue of $26 million and earnings of $3.0 million, or $0.22 per share. That represented 19% annual revenue growth and 130% annual earnings growth. The analyst community was expecting earnings of $0.07 per share on $20 million in revenue, so Clearfield posted a whopping 214.3% earnings surprise and a 30% revenue surprise.
CLFD has clearly come a long way since then, and given its superior fundamentals, I don’t see it tapping the brakes any time soon.
Of course, CLFD isn’t the only 5G stock (or fundamentally superior stock) I recommend in Accelerated Profits. My Accelerated Profits Portfolio is chock-full of them. In fact, I currently have 69 stocks in my Accelerated Profits Portfolio. And I’m pleased to say that my Accelerated Profits stocks have superior forecasted sales (30.3%) and earnings growth (62.4%), as well as strong earnings surprise histories (44.9%). A flight to quality remains underway, led by companies with strong sales and earnings. Since my Accelerated Profits stocks have much stronger average sales and earnings growth than the overall stock market – the S&P 500’s current average earnings growth is 29.2% and sales growth is 15% – I expect my Accelerated Profits stocks will continue to emerge as market leaders.
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Clearfield Inc (CLFD)