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Communication Services : Diversified Telecommunication Services | Large Cap Value
Company profile

AT&T Inc. is a holding company. The Company is a provider of telecommunications, media and technology services globally. The Company operates through three segments: Communication segment, WarnerMedia segment, and Latin America segment. The Communications segment provides wireless and wireline telecom, video and broadband services to consumers. The business units of the Communication segment includes Mobility, Entertainment Group and Business Wireline. The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. WarnerMedia segment also includes Xandr, which provides advertising services. Latin America segment provides wireless services in Mexico. Mexico is the business unit of the Latin America segment. Its Xandr segment provides advertising services.

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31,680,169

These 20 tech stocks boosted sales by up to 152% while also expanding profit margins

7:20 am ET August 5, 2021 (MarketWatch)
Print

By Philip van Doorn

The winning tech companies include Enphase, AMD and Tesla

With almost three-quarters of S&P 500 companies having reported earnings this season, it's time to review the winners.

Below is a screen showing 20 U.S. technology companies that appear to be firing on all cylinders, with improving sales, gross margins and operating margins.

This quarterly earnings season, year-over-year comparisons of results for companies in many industries are distorted because of pandemic shutdowns in 2020. For example, second-quarter sales for Delta Air Lines Inc. (DAL) were up 385% from a year earlier.

So the following list of earnings-season winners is derived from the 74 companies in the S&P 500 information technology sector, plus six tech players in the communications sector, including Alphabet Inc. (GOOGL)(GOOGL), Facebook Inc. (FB), Netflix Inc. (NFLX) and three videogame developers, along with two in the consumer discretionary sector (Amazon.com Inc. (AMZN) and Tesla Inc. (TSLA)), for a total of 82 "tech" companies.

What does it mean to be a winner in this environment? Well, investors always want to see a company's sales increasing. They also want to see pricing power for a company's products and services. And in an inflationary environmen (https://www.marketwatch.com/story/inflation-surges-again-in-june-pce-shows-as-shortages-plague-the-u-s-economy-11627648930)t with rising costs for labor (https://www.marketwatch.com/story/u-s-labor-costs-decelerate-in-second-quarter-11627649103) and other overhead, investors will keep an eye on operating earnings.

Businesses always face challenges. The good news for now is that U.S. consumers are happy to spend (https://www.marketwatch.com/story/americans-arent-cutting-back-on-spending-even-with-rising-inflation-11627575491).

A screen of earnings winners

Beginning with the 82 "tech" companies in the S&P 500 (as defined above), 62 had reported financial results for fiscal quarters ending April 30 or later through Aug. 3. Among the 62 companies, 49 increased sales from a year earlier while also improving their gross margins and operating margins.

A company's gross margin is it net revenue minus the cost of goods or services sold. It reflects a company's pricing power and its direct production costs, including labor and materials. A company's management team might decide to build market share by increasing discounts to customers or holding the line on price increases. This may be worthwhile depending on the competitive environment, but it cannot go on forever. It's a good sign if the gross margin is expanding as sales increase.

A company's operating margin goes further, subtracting more overhead and other expenses that aren't directly related to the production of goods and services sold. It is, essentially, earnings before interest and taxes (EBIT) divided by sales.

Here are the 20 tech companies among the S&P 500 that increased quarterly sales the most from a year earlier while also improving their gross and net margins:

Company  Increase in quarterly sales from year earlier  Gross margin  Gross margin -- year-earlier quarter  Quarterly operating margin  Operating margin -- year-earlier quarter 
Enphase Energy Inc. ENPH  151.8%  39.64  38.11  21.20  11.94 
Advanced Micro Devices Inc. AMD  99.3%  47.53  43.89  24.68  13.20 
Tesla Inc. TSLA  98.1%  24.12  20.99  16.86  14.81 
Qualcomm Inc. QCOM  64.7%  57.77  57.49  32.27  23.40 
Alphabet Inc. Class A GOOGL  62.2%  57.62  51.36  36.05  25.21 
Facebook Inc. Class A FB  55.6%  81.43  79.51  49.36  41.03 
Skyworks Solutions Inc. SWKS  51.5%  49.82  44.96  38.63  33.92 
TE Connectivity Ltd. TEL  50.9%  32.28  27.75  24.14  16.88 
Lam Research Corp. LRCX  48.7%  46.20  45.80  33.64  29.54 
Zebra Technologies Corp. Class A ZBRA  44.9%  45.90  41.79  21.42  15.79 
NXP Semiconductors N.V. NXPI  42.9%  50.12  26.42  34.63  22.40 
Texas Instruments Inc. TXN  41.4%  67.18  64.28  54.76  47.89 
Applied Materials Inc. AMAT  41.2%  47.47  44.18  32.92  25.95 
IPG Photonics Corp. IPGP  38.7%  47.45  44.67  30.53  19.79 
Apple Inc. AAPL  37.2%  43.46  37.11  33.28  25.60 
Micron Technology Inc. MU  36.5%  41.85  32.42  50.70  42.66 
Keysight Technologies Inc. KEYS  36.4%  60.44  57.54  26.45  20.11 
Corning Inc. GLW  36.4%  36.26  32.33  26.59  22.78 
Qorvo Inc. QRVO  36.2%  49.26  42.88  37.73  30.78 
Amphenol Corp. Class A APH  33.5%  31.77  30.38  23.90  21.58 
Source: FactSet 

Click on the tickers for more about each company, including news coverage and price ratios.

Outlook through 2023

Long-term investors might be interested in seeing how much more sales growth is expected for these companies, based on consensus estimates among analysts polled by FactSet going out another couple of years. Leaving the group in the same order, here are expected compound annual growth rates (CAGR) for sales through 2023, with 2020 as the baseline:

Company  Estimated revenue -- calendar 2020  Estimated revenue -- calendar 2021  Estimated revenue -- calendar 2022  Estimated revenue -- calendar 2023  Estimated three-year sales CAGR through 2023 
Enphase Energy Inc. ENPH  $774  $1,336  $1,796  $2,232  42.3% 
Advanced Micro Devices Inc. AMD  $9,763  $15,433  $17,986  $20,260  27.6% 
Tesla Inc. TSLA  $31,536  $50,042  $68,401  $85,143  39.2% 
Qualcomm Inc. QCOM  $24,520  $33,853  $36,781  $37,057  14.8% 
Alphabet Inc. Class A GOOGL  $182,612  $247,121  $288,025  $331,861  22.0% 
Facebook Inc. Class A FB  $85,967  $118,487  $141,496  $164,772  24.2% 
Skyworks Solutions Inc. SWKS  $3,798  $5,260  $5,868  N/A  N/A 
TE Connectivity Ltd. TEL  $12,872  $15,155  $16,107  $17,096  9.9% 
Lam Research Corp. LRCX  $12,368  $16,147  $17,975  $18,683  14.7% 
Zebra Technologies Corp. Class A ZBRA  $4,452  $5,487  $5,708  $6,010  10.5% 
NXP Semiconductors N.V. NXPI  $8,611  $10,841  $11,597  $12,200  12.3% 
Texas Instruments Inc. TXN  $14,461  $17,884  $18,577  $19,203  9.9% 
Applied Materials Inc. AMAT  $18,122  $23,012  $24,961  $26,080  12.9% 
IPG Photonics Corp. IPGP  $1,201  $1,472  $1,618  $1,715  12.6% 
Apple Inc. AAPL  $297,656  $368,618  $382,730  $403,987  10.7% 
Micron Technology Inc. MU  $23,532  $30,840  $38,485  N/A  N/A 
Keysight Technologies Inc. KEYS  $4,332  $4,920  $5,194  N/A  N/A 
Corning Inc. GLW  $11,451  $14,013  $14,704  $15,355  10.3% 
Qorvo Inc. QRVO  $3,831  $4,485  $4,909  $5,264  11.2% 
Amphenol Corp. Class A APH  $8,599  $10,465  $11,111  $11,655  10.7% 
Source: FactSet 

Even the calendar 2020 numbers are marked as estimates, because many companies have fiscal years and quarters that don't match the calendar.

For three of the companies, consensus annual sales estimates are available only through calendar 2022. Here are their expected two-year sales CAGR from the estimates on the table:

Roundup of analysts' opinions

Here's a summary of analysts' ratings and price targets for the group of 20 "tech" sales winners:

Company  Share "buy" or equivalent ratings  Closing price -- Aug. 3  Consensus price target  Implied 12-month upside potential 
Enphase Energy Inc. ENPH  64%  $192.62  $200.55  4% 
Advanced Micro Devices Inc. AMD  59%  $112.56  $111.70  -1% 
Tesla Inc. TSLA  43%  $709.74  $695.41  -2% 
Qualcomm Inc. QCOM  62%  $147.95  $181.91  23% 
Alphabet Inc. Class A GOOGL  98%  $2,712.60  $3,135.64  16% 
Facebook Inc. Class A FB  80%  $351.24  $415.85  18% 
Skyworks Solutions Inc. SWKS  57%  $188.19  $215.71  15% 
TE Connectivity Ltd. TEL  58%  $149.40  $156.13  5% 
Lam Research Corp. LRCX  73%  $645.52  $746.90  16% 
Zebra Technologies Corp. Class A ZBRA  58%  $546.74  $559.11  2% 
NXP Semiconductors N.V. NXPI  66%  $210.53  $230.63  10% 
Texas Instruments Inc. TXN  44%  $189.34  $204.03  8% 
Applied Materials Inc. AMAT  76%  $142.16  $161.92  14% 
IPG Photonics Corp. IPGP  57%  $177.69  $244.61  38% 
Apple Inc. AAPL  75%  $147.36  $163.74  11% 
Micron Technology Inc. MU  88%  $80.86  $120.03  48% 
Keysight Technologies Inc. KEYS  71%  $166.71  $166.46  0% 
Corning Inc. GLW  67%  $41.70  $48.75  17% 
Qorvo Inc. QRVO  64%  $195.18  $214.00  10% 
Amphenol Corp. Class A APH  56%  $73.83  $78.57  6% 
Source: FactSet 

Wall Street analysts' ratings and price targets are based on one-year outlooks -- a tradition in the brokerage industry. But one year is a short period for committed long-term investors. So the longer-term look at sales-growth projections in the second table doesn't necessarily fit in with the 12-month price targets and ratings.

As always, a snapshot of data isn't enough to make an investing decision. If you're considering a stock for investment, it is best to do your own research and form your own opinion about a company's likelihood of remaining competitive over the next decade.

Don't miss:Semiconductor stocks are rallying -- and they still look like bargains (https://www.marketwatch.com/story/semiconductor-stocks-are-rallying-and-they-still-look-like-bargains-11627924927)

-Philip van Doorn

	

(END) Dow Jones Newswires

August 05, 2021 07:20 ET (11:20 GMT)

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