Telecom Stock Roundup: Ubiquiti, CommScope Trump Earnings Estimates & More

In the past five trading days, the initial gains witnessed by telecom stocks were offset by subsequent decline as tariff war escalated with both the United States and China refusing to cede any ground. As the equity markets reeled under the likelihood of higher tariffs on additional Chinese imports and retaliatory measures from the communist nation, telecom stocks mirrored the broader market sentiments with uncertainty creeping in the sector.

Last-ditch attempts at trade negotiations between the U.S. treasury secretary Steven Mnuchin and trade representative Robert Lighthizer with a Chinese delegation led by vice premier Liu He failed to evoke favorable response from either side. As the bilateral trade talks fell flat, the Trump administration went ahead with its decision to increase tariffs on $200 billion worth of Chinese imports from 10% to 25%. This triggered retaliatory tariffs from China on U.S. imports worth $60 billion as it vouched to trade fire with fire. Tariffs ranging from 5-25% on 5,140 U.S. products are likely to take effect from June. Trump is also considering additional tariffs on remaining $325 billion worth of imports from China to rake in more revenues.

Meanwhile, the U.S. President has signed a long-awaited executive order to declare national emergency. Although the order was company and country agnostic, it effectively barred U.S. firms from either buying or selling any telecom equipment to firms like Huawei that are deemed to pose national security risks, virtually crippling its operations. The directive invoked the International Emergency Economic Powers Act, which bestowed the President with the authority to regulate commerce in view of the national emergency that threatened the country. The U.S. Commerce Department immediately added Huawei along with 70 of its affiliates to the Entity List – a list of entities that are ineligible to receive any item without the government approval. This is likely to act as a death knell for Huawei as it largely depends on U.S. firms for raw material supplies. Moreover, it garners significant revenues from the American shores by selling its finished products in the vast rural markets due to its low price. Whether the strategic move is aimed at seeking favorable trade concessions from China or preventing any further retaliatory tariffs from the communist nation remains to be seen.

Regarding company-specific news, quarterly earnings, divestment and patent validation primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1. Ubiquiti Networks, Inc. (NASDAQ:UBNT) reported healthy third-quarter fiscal 2019 results with year-over-year increase in revenues and adjusted earnings. Both the bottom line and the top line surpassed the respective Zacks Consensus Estimate.

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Non-GAAP net income came in at $88.9 million or $1.26 per share compared with $76 million or 98 cents per share, a year ago. The bottom line beat the Zacks Consensus Estimate by 20 cents. Quarterly revenues increased 13.8% year over year to $284.9 million, primarily driven by higher sales at Enterprise Technology business. The top line surpassed the consensus estimate of $257 million. (Read more: Zacks Investment Research

Written By: Zacks Investment Research