The moment of truth has arrived as the first quarter earnings extravaganza is in full effect this week and beyond. Investors who have paid attention during the quarter know that many “bond proxy” stocks, like energy master limited partnerships, utilities and telecom stocks, have had an outstanding quarter. The defining mark to continue outperformance will be how the companies performed on an earnings basis.

A new Merrill Lynch research report handicaps and refines earnings estimates for the stocks in the firm’s telecom universe, and three leading companies are listed as the “key” stocks heading into the earnings reports. All are rated Buy at Merrill Lynch, and all have their earnings or revenue estimates lifted higher.

AT&T

This company had an outstanding first quarter, from a stock price standpoint, and could be poised to go higher. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.

With shares trading at a very cheap 12.5 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors has not only driven traffic, but increased device financing plans.

AT&T has been focusing on the IP VPN and Ethernet services. This outstanding business model, along with the decline of Verizon’s market share in the arena, has helped the company to meaningfully to grow its revenues from strategic business services. Apart from taking appropriate technical measures, the company has collaborated with big cloud service providers like Amazon Web Service and data center operators to provide Ethernet connections.

The Merrill Lynch team, while lowering first-quarter postpaid net additions estimate substantially, raised their quarterly earnings-per-shares estimates from $0.68 to $0.71, citing the company’s lower handset expenses. The company is expected to report earnings on April 26.

AT&T investors receive a huge 5% dividend. The Merrill Lynch price target for the stock is $40, and the Thomson/First Call consensus estimate is at $39.07. Shares were trading Monday at $38.44.

CenturyLink

This is the largest of the rural local exchange carriers (RLECs) and is expected to continue get a large dose of government money to provide continuing internet service in rural areas. CenturyLink Inc. (NYSE: CTL) is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses through innovative technology solutions.

CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and it operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network.

Merrill Lynch has liked the stock over the past year as it transforms itself from a telecom to a technology company. While many have worried over the company maintaining the dividend, Merrill Lynch increased its estimates for first-quarter earnings after management’s commentary on expenses.

CenturyLink investors are paid a gigantic 6.7% dividend. Merrill Lynch has a $42 price target, and the consensus target is $35.25. The stock was trading on Monday at $32.19.

Frontier Communications

This is another RLEC that the Merrill Lynch team has remained positive on. Frontier Communications Corp. (NASDAQ: FTR) offers broadband, voice, video, wireless internet data access, data security solutions, bundled offerings, specialized bundles for residential customers, small businesses and home offices and advanced business communications for medium and large businesses in 28 states. Its approximately 17,800 employees are based entirely in the United States. Wall Street analysts note that the company has taken broadband share in almost 80% of operating markets last year.

The company’s $8.5 billion acquisition of Verizon’s wireline operations that were providing services to residential, commercial and wholesale customers in California, Florida and Texas are a huge difference maker when it comes to the Merrill Lynch 2016 and 2017 estimates. The analysts increase 2016 EBITDA numbers from $2.129 billion to $3.751 billion. The 2017 EBITDA numbers go from $2.121 billion to $4.308 billion. The company is expected to report earnings in early May. The analysts also feel that company will be generating cash flow to cover the large dividend by more than two times.

Frontier investors a paid a massive 7.78% dividend. The $9 Merrill Lynch price target is well above the consensus target of $6.29 Shares were trading on Monday at $5.40.

For growth and income investors, all three of these make good sense, especially for those with a long-term horizon. Demand for telecom services is competitive from a margin standpoint, but consumers are willing to pay for what they want.

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