The last week looked like a bad spell for the telecom sector. All major telecom stocks lost value in line with the broader market (the S&P 500) movement attributable to growing uncertainty about the upcoming U.S. presidential election, continuous slump in crude oil prices and mixed macro-economic data. Despite this doldrums, two major merger and acquisition deals were announced last week.

Qualcomm Inc. (QCOM Quick QuoteQCOM - Free Report) , the largest mobile chipset manufacturer globally, has entered into a definitive agreement to acquire Netherlands-based chipset giant NXP Semiconductors NV (NXPI Quick QuoteNXPI - Free Report) for a total consideration of approximately $47 billion. The deal is anticipated to close by the end of 2017 subject to all necessary regulatory approvals. In addition, Qualcomm declared impressive results for the fourth quarter of fiscal 2016 wherein both the top and the bottom line outpaced the Zacks Consensus Estimate.

Moreover, CenturyLink Inc. and Level 3 Communications Inc. entered into a definitive agreement through which the former will acquire the latter in a cash and stock transaction. Total deal size is approximately $34 billion including debt.The deal is anticipated to close in the third quarter of 2017, subject to customary regulatory approvals.

Additionally, CenturyLink reported strong financial results in the third quarter of 2016, wherein both the bottom and the top line beat the Zacks Consensus Estimate. On the other hand, Level 3 Communications reported weak financial results for the third quarter of 2016 wherein both the top and the bottom line missed the Zacks Consensus Estimate.

Meanwhile, leading wireless tower operator American Tower Corp. (AMT Quick QuoteAMT - Free Report) reported strong financial numbers in the third quarter of 2016, with both the top and the bottom line outpacing the Zacks Consensus Estimate. American Tower currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Regional telecom operator Cincinnati Bell Inc. also reported strong financial results in third-quarter 2016 wherein both the top and the bottom line beat the Zacks Consensus Estimate. Another regional telecom operator Frontier Communications Corp. reported mixed financial results in the third quarter of 2016. The company’s adjusted net loss was in line with the Zacks Consensus Estimate while revenues fell short of the same. 

Read the last Telecom Stock Roundup for Oct 27, 2016.

Recap of the Week’s Most Important Stories

1.    The major positive of the NXP Semiconductors deal is that it will enable Qualcomm to diversify its business model into highly lucrative end markets such as auto, secured devices, connectivity and secure payments. These segments offer high-margin businesses with strong potential for growth. This transaction will place Qualcomm in the second position after Intel Corp. (INTC Quick QuoteINTC - Free Report) in terms of sales in the broader global semiconductor market. (read more: Qualcomm to Buy NXP Semiconductors for $47 Billion.)

2.  Both CenturyLink and Level 3 Communications provide communications services like data, voice and video transmission to large enterprises. CenturyLink expects the transaction to be accretive to free cash flow in the first full year following its closure of the deal and be significantly accretive on an annual run-rate basis thereafter. The combined entity is likely to generate $975 million of annual cash synergies.  (read more:  CenturyLink Inks Deal to Buy Level 3 Communications.)

3.    In the third quarter of 2016, American Tower’s Adjusted Funds from Operations (AFFO) of $641.3 million or $1.49 per share improved from the year-ago quarter’s $558 million or $1.31, respectively. Moreover, the bottom line surpassed the Zacks Consensus Estimate of $1.39. Total revenue of $1,515 million increased 22.4% year over year and also beat the Zacks Consensus Estimate of $1,508 million. (read more:  American Tower Beats Q3 Earnings; Raises '16 View.)

4.    On a GAAP basis, net loss at Frontier Communications in the third quarter was $134 million or a loss of 12 cents per share compared with a net loss of $81 million or 7 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) loss per share was 4 cents, in line with the Zacks Consensus Estimate. Total revenues increased a whopping 77.2% year over year to $2,524 million. However, the figure lagged the Zacks Consensus Estimate of $2,561 million. (read more:  Frontier Communications Reports In-Line Loss in Q3.)

5.    On a GAAP basis, quarterly net income at Cincinnati Bell was $18.8 million or 38 cents per share compared with a net income of $79.3 million or $1.85 in the year-ago quarter. Meanwhile, adjusted (excluding special items) earnings per share of 7 cents beat the Zacks Consensus Estimate of 5 cents. Quarterly total revenue was $312.4 million, up 4% year over year and above the Zacks Consensus Estimate of $301 million. (read more: Cincinnati Bell Beats Q3 Earnings, Keeps 2016 View.)

Price Performance

The following table shows the price movement of the major telecom players over the past week and the last six months.

Over the last five trading sessions, share price movement of all major telecom stocks was negative, barring China Mobile which gained a considerable 5.21%. Sprint (6.59%) and DISH (4.42%) lost significant value over the same time frame. However, over the last six months, the price performance of most telecom stocks witnessed a mixed trend. Among the stocks that gained considerably were Sprint (62.13%), T-Mobile US (24%) and DISH (16.27%).

What’s Next in the Telecom Sector?

We expect heightened activity in the telecom sector over the next week as several telecom operators like Telephone and Data Systems, United States Cellular, BCE Inc., TELUS Corp., Charter Communications Inc., Liberty Global plc., DISH Network Corp. and Windstream Holdings are slated to release their quarterly results. The market will closely evaluate these quarterly results in a bid to assess industry dynamics and growth prospects.

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