Wednesday’s ETF To Watch: U.S. Telecommunications Index Fund (IYZ)

by on April 20, 2011 | ETFs Mentioned:

Thanks to the loss of AT&T’s exclusive hold over the iPhone in the U.S. the country’s telecom market appears to be shaken up at least in the near term. While many are still debating the merits of Verizon’s deal with Apple to carry the phone the impact of the news on AT&T certaintly looks to be profound especially if more customers jump its network for Verizon or even Sprint. Thanks to this issue, AT&T has made a play for T-Mobile a firm that could help improve AT&T’s network and increase its ability to maintain solid growth levels. However, many are opposed to the deal and it still remains up in the air whether the transaction can pass through the regulatory hurdles. While both of these issues remain clouded, investors should obtain some information regarding both of them later today when AT&T releases its quarterly earnings report. 

AT&T is the country’s largest telecom company with about 86.2 million wireless customers and another 43.7 million landline users. The Dallas-based giant is expected to post EPS of 58 cents compared to a 59 cent EPS in the year ago period. In terms of revenues, analysts are looking for a 1.9% increase from the year ago period in which the company posted revenues of $30.65 billion. So while revenues are predicted to be up slightly, total earnings look likely to be flat, suggesting declining margins or additional charges and expenditures for the company [use the Stock Exposure Tool to find which ETFs hold your favorite stocks].

Beyond the headline number, investors will likely focus in on a few key metrics of the firm which could signal where T is headed in the future. First off, and arguably most importantly, is the net subscriber additions for the quarter. In the previous quarter, the company managed to add a net 2.8 million subscribers but a little over half of those were with low average revenue devices such as the Kindle and other e-readers. Now that Verizon has the iPhone, some are looking for this figure to shrink significantly, potentially dragging on the future growth predictions for the firm. “The iPhone has been propping up AT&T’s results for nearly four years, so the loss of exclusivity is a monumental challenge for the company,” wrote the AP in a recent story. Additionally, investors will likely hone in on any comments regarding the T-Mobile deal. The possible acquisition has already received some level of regulatory scrutiny and further news of the company’s plans to integrate T-Mobile will likely be welcomed by investors [Best ETF Performers Of 2010].

Thanks to this key earnings report, investors should look for the iShares Dow Jones U.S. Telecommunications Index Fund (IYZ) to remain active throughout today’s trading session. The fund puts close to 16% of its total assets in AT&T while a large weighting goes towards fellow behemoth Verizon Communications as well. Over the past few weeks, IYZ has been relatively flat, sinking over the past two weeks but surging higher when looking at both the four and 13 week periods. Should the company disappoint investors with its number of iPhone additions or lower its guidance, expect the news to drag down IYZ on the day. If, however, T can surprise investors with a robust number of iPhone adds it could help to boost investor sentiment regarding the entire telecommunications industry, boosting shares of AT&T and IYZ in the process [see more on IYZ's fact sheet].

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Disclosure: No positions at time of writing.