BofA focuses on three key stocks heading into telecom’s third quarter earnings (NYSE:VZ)

Looking ahead to third-quarter results among telecoms and telecom services, BofA is focusing on its highest-conviction impressions and the areas where it departs most from Wall Street consensus.

That applies to its impressions on the big three wireless carriers, analyst David Barden notes, highlighting the biggest deltas in his estimates.

On AT&T (NYSE:T), Street consensus on postpaid phone net additions is too low, he says, since AT&T will benefit from a larger pool of service switchers and promotional activity. He estimates that figure to come in at 687,000, vs. consensus for 582,000 (and even that’s being pulled down by a “highly unlikely” low-end estimate for 130,000, he says).

On the flip side, the Street is probably too high with its estimate for T-Mobile’s (TMUS) core adjusted earnings before interest, taxes, depreciation and amortization, he notes, forecasting that figure to come in at $6.5B vs. a consensus for $6.7B.

There, site decommissioning will substantially wrap up in Q3, he says. The company ended Q2 with “two-thirds of its 35,000 site decommissioning target achieved with the remaining third expected to be substantially complete in 3Q.” The high consensus for T-Mobile (TMUS) may not fully account for “the iPhone launch during the quarter, VZ’s increased promotional activity, and the timing of decommissioning benefits weighted to 4Q,” Barden says.

And on Verizon (NYSE:VZ), Barden thinks Street expectations for consumer postpaid churn are too low.

“After raising prices at the end of last quarter, VZ has flagged its expectation for temporarily elevated consumer postpaid phone churn in 3Q22. The churn bubble is only expected to impact 3Q,” Barden writes.

But he expects the bubble to push churn up to 0.89% in Q3, vs. consensus for 0.84%. Churn falling will help lift reported net adds in the important holiday fourth quarter, however.

Verizon (VZ) is one of his key stocks to watch as results roll in, with its leadership gap narrowing. Along with soft net adds due to the elevated churn, he expects the company will show progress growing average revenue per account and gross adds, thanks to new promotions and plans, “but its challenge is building momentum and moving from postpaid phone net losses to positive net additions.”

He’s staying Neutral on the stock, expecting long-term guidance cuts will come in the first quarter of 2023. Verizon (VZ) reports earnings before the market opens next Thursday, Oct. 21.

Another key stock to watch is Lumen Technologies (NYSE:LUMN), where eyes are on new management’s next steps (Kate Johnson was named as the new CEO on Sept. 13, and the company got a new chief financial officer in April).

“We understand the team’s priorities … are to (1) invest in growth, and (2) manage leverage,” Barden says, adding “We continue to believe a dividend cut is inevitable in the near future. Equally as inevitable will be the swift negative reaction of the income-centric retail money which represents the vast majority of the shareholder base.”

BofA’s other key stock to watch in the sector is Crown Castle (NYSE:CCI), which will be the “first and only” communications infrastructure company to share 2023 guidance this quarter. That should offer a read-through for domestic leasing at American Tower (AMT) and SBA Communications (SBAC), Barden says.