Sprint Corporation (S) – the third largest telecom operator in the U.S. – is scheduled to report second-quarter fiscal 2014 financial numbers on Nov 3, after market close.
Last quarter, the company had delivered an impressive 125.00% positive earnings surprise. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
Sprint is progressing well with its network modernization and integration efforts, which will fortify its position in the wireless industry. The company’s core platform business is dependent on the success of its multi-billion dollar restructuring program known as Network Vision.
Sprint has reportedly announced plans to shut down its WiMAX service, effective Nov 6, 2015. We believe while the discontinuation of old services will create opportunities for adding the latest technology and services under the company’s portfolio, cost incurred thereon is likely to hurt margins over the near term.
Moreover, given more than 95% U.S. wireless penetration, competition is likely to remain intense, which could pressure top and bottom-line results as carriers compete for market share. Also, going forward, capital expenditure for the year is expected to increase owing to expansion of Sprint Spark throughout fiscal 2014. To add to the woes, substantial iPhone subsidies, increased postpaid churn coupled with higher spending may act as headwinds for Sprint, going forward.
Earnings Whispers?
Our proven model does not conclusively show that Sprint is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, that is not the case here as elaborated below.
Negative Zacks ESP: Sprint has an earnings ESP of -20.00%. This is because the Most Accurate estimate stands at a loss of 6 cents while the Zacks Consensus Estimate is at a loss of 5 cents.
Zacks Rank: Sprint has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
However, here are some companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.
Lumos Networks Corp. (LMOS) has an earnings ESP of +15.39% and carries a Zacks Rank #2 (Buy).
Ruckus Wireless, Inc. (RKUS) has an earnings ESP of +60.00% and carries a Zacks Rank #3 (Hold).
DragonWave Inc. (DRWI) has an earnings ESP of +16.67% and carries a Zacks Rank #3.
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