CHICAGO, Oct. 19, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: AT&T Inc. (NYSE: T), Google Inc. (Nasdaq: GOOG), Verizon Communication (NYSE: VZ), Apple Inc (Nasdaq: AAPL) and Wells Fargo & Company (NYSE: WFC).
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Here are highlights from Tuesday's Analyst Blog:
Earnings Preview: AT&T
The second-largest U.S. mobile service provider AT&T Inc. (NYSE: T) is slated to release its third quarter earnings on October 20 before market opens. The current Zacks Consensus Estimate for the third quarter is 61 cents, representing a substantial increase of 10.56% from the year-ago level.
Looking at surprises, AT&T had average positive surprise of 1.77% in the past four quarters.
Second Quarter Flashback
In the second quarter, AT&T's adjusted earnings were a penny above the Zacks Consensus Estimate and flat with the year-ago earnings.
Total revenue improved from the year-ago quarter and surpassed the Zacks Consensus Estimate. Strong revenues from the Wireless segment were driven by subscriber addition, connected device additions and higher smartphone sales. The dampener was Wireline revenue, which was impacted by declining traditional voice access lines.
AT&T added 1.1 million wireless subscribers to reach 98.6 million. The growth was attributable to the rapid adoption of smartphones, strong prepaid subscribers and growth in connected devices.
On the wireline front, U-verse TV and bundled satellite subscribers remained healthy during the quarter on continued high-speed Internet attach rates. On the other hand, total consumer connections remained depressed due to a drop in traditional voice access lines, partially offset by higher U-verse TV, broadband and VoIP (Voice over Internet Protocol) connections.
Agreement of Analysts
Estimates for the third quarter have been trending upward over the last 7 and 30 days. Over the last 7 days, 2 analysts out of 21 have made upward revisions while none moved in the opposite direction. Over the last 30 days, 2 analysts increased their estimates while 1 made a negative revision.
For fiscal 2011, out of 25 analysts, 3 revised their estimates upward over the last 30 days while 1 moved in the same direction over the last 7 days. Only 1 analyst made a negative revision to the estimate over the last 30 days and none revised the estimate downward over the 7 days.
The analysts have turned positive based on AT&T's strong smartphone portfolio. They expect 2011 to be a strong year with continued revenue growth, margin expansion, and growth in earnings per share and free cash flow. The improvement will be primarily driven by strong iPhone and smartphone sales coupled with growth in tablets and connected devices that are accelerating subscriber gains while reducing churn.
AT&T met its previous target of 12 smartphones and introduced 5 new Google Inc.'s (Nasdaq: GOOG) Android smartphones on strong adoption. The new additions bring the total number of smartphones to 19 for the year. This is a huge success for the company in the current competitive environment.
Further, despite the loss of exclusivity to its largest rival Verizon Communication (NYSE: VZ) this February, AT&T is gaining continuously from strong Apple Inc (Nasdaq: AAPL) iPhone 4 sales. Last week, AT&T saw an astounding demand for the new iPhone 4S, which marks the best order ever received by the company for the iPhone.
Moreover, the company launched it long-awaited 4G Long-Term Evolution wireless networks in the U.S. last month. The company has initially launched its services in five cities namely Atlanta, Chicago, Dallas, Houston and San Antonio and looks to cover approximately 15 markets and 70 million Americans by the end of the year.
AT&T also seeks to enter into the hotel WiFi (wireless broadband) business. In addition, AT&T's billion-dollar investment in cloud computing services will open new opportunities for future growth. Moreover, the company joined hands with a social gaming company, Zynga, to add more value to wireless subscribers.
Going by the iPhone track record, we expect AT&T to gain more subscribers from the new 4S, and consequently rake in higher revenues. While iPhones are offering a strong growth momentum, the related high marketing cost is hurting AT&T's earnings. Moreover, the company is currently paying a hefty subsidy of approximately $300 per phone to Apple, which is dilutive to the company's earnings.
Wells Fargo Lags Estimates
Wells Fargo & Company's (NYSE: WFC) third quarter 2011 earnings of 72 cents per share were a penny behind of the Zacks Consensus Estimate. Results improved from earnings of 70 cents in the prior quarter and 60 cents in the year-ago quarter.
Though Wells Fargo's results were impacted by lower top line, reduction in operating expenses, improved credit quality along with strong capital ratios were positives during the reported quarter.
Wells Fargo's third quarter net income applicable to common stock came in at $3.8 billion compared with $3.7 billion in the prior quarter and $3.2 billion in the prior-year quarter.
The quarter's revenue came in at $19.6 billion, which was below the Zacks Consensus Estimate of $20.3 billion and down 3.7% sequentially. On a sequential basis, though Wells Fargo's commercial real estate, credit card, insurance, international, asset management, government and institutional banking and student lending reported revenue growth, market-sensitive revenues were down.
Furthermore, segment wise, on a sequential basis, Wholesale Banking reported a 8.5% drop in revenues while the Community Banking and Wealth, Brokerage and Retirement segments reported declines of 0.6% and 6.4%, respectively.
Wells Fargo reported a reserve release of $800 million (pre tax), attributable to improved portfolio performance. The company also expects future reductions in the allowance should the economy improve significantly.
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