Sprint Corporation (S - Analyst Report) – a leading telecom operator in the U.S. –is scheduled to report third-quarter fiscal 2015 financial numbers on Jan 26, before the market opens.
Last quarter, the company delivered a 44.44% negative earnings surprise. Moreover, the company’s bottom line has surpassed the Zacks Consensus Estimate in only two of the past four quarters, with an average miss of 3.70%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that the company is likely to beat the Zacks Consensus Estimate because it has the right combination of two key ingredients.
Zacks ESP: Sprint has an earnings ESP of +11.11%. This is because the Most Accurate estimate stands at a loss of 24 cents while the Zacks Consensus Estimate is pegged at a loss of 27 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Sprint has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating bottom-line estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Sprint’s Zacks Rank #3 and +11.11% ESP makes us confident of a better-than-expected bottom line at the company.
What is Driving Positive Expectations?
Sprint has signed a deal with the newly formed Mobile Leasing Solutions, LLC, which has been created by a group of equity investors including Sprint’s majority owner and parent company, Softbank Group. Roughly $1.1 billion cash infusion occurred through this sale and lease-back deal. Notably, Sprint anticipates sale of 2.5 million leased devices with a projected book value of $1.3 billion to Mobile Leasing Solutions. The lease-back deal is intended to reduce one of Sprint’s biggest expenses – the cost of buying millions of new devices. This in turn will help Sprint lower equipment costs and free up much-needed resources to focus on new growth opportunities.
Additionally, Sprint is strategically poaching on its rivals’ customers to boost its subscriber base. Recently, the company launched a promotion offering AT&T, Inc. (T - Analyst Report), Verizon Communications Inc. (VZ - Analyst Report) and T-Mobile US, Inc. (TMUS - Analyst Report) customers a 50% price cut on their existing plans if they switch to Sprint.
However, Sprint’s financials may take a severe hit as its promotional strategies are likely to impact its wireless segment’s EBITDA and EBITDA service margins in the near term, considering an anticipated increase in expenses.
Other Stocks to Consider
Here is another company that investors may consider as our model shows it too has the right combination of elements to post an earnings beat this quarter.
Verizon Communications Inc., which has an earnings ESP of +0.95% and a Zacks Rank #3
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