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Will T-Mobile US (TMUS) Disappoint Investors in Q2 Earnings?


T-Mobile US Inc. TMUS, the third-largest national wireless operator is slated to report second-quarter 2017 results after the market closes on Jul 19.

Last quarter, T-Mobile US delivered a positive earnings surprise of 31.43%. The company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters with an average beat of 30.74%.

Over the past three months, share price of T-Mobile US have declined 5.22% compared with the Zacks categorized Wireless National industry’s fall of 9.24%.

Lets see how things are shaping up for this announcement.

Factors at Play

T-Mobile US operates in a highly competitive and saturated wireless market where success depends on technical superiority, quality of services and scalability. In all these areas, the company lags its peers Verizon Communications Inc. VZ and AT&T Inc. T. Also, Sprint is extensively restructuring its business model and is striving to attain the position held by T-Mobile US in the market. Such intense competition could limit the company’s ability to attract and retain customers which will affect its results.

Moreover, the company faces increased scrutiny in its working conditions, lawsuits and fines by regulatory authorities and institutional investors.

In order to lure customers from competitors, T-Mobile US continues to launch several low-priced service plans for individual consumers as well as small business entities. We are concerned regarding the marketing costs of the low-priced promotional plans which lead to high cash burn and heavy losses for the company.

Despite such negatives, we believe T-Mobile US' network expansion plans consisting of 5G trials with Ericsson and Nokia, 4G LTE network improvement and its expansion, deployment of LTE-U technology and unlimited ‘T-Mobile One’ plan might have driven its substantial consumer growth in the last reported first-quarter 2017. As of Mar 31, 2017, the total customer base of T-Mobile US was 72.597 million, up 10.8% year over year. Branded postpaid phone customers totaled 32.095 million, up 6.2%. Branded postpaid mobile broadband customer count was 3.246 million, surging 29.6%. Branded prepaid customer count was 20.199 million, up 9.6%. The company’s management raised its outlook for 2017 on the back of huge user gain. We look forward to see if the company succeeds in gaining customers in the to-be-reported quarter.

The company’s decision to roll out 600 MHz wireless spectrum is a strategic move for its growth prospects. Offering the latest version of iPhone7, which requires strong wireless bandwidth, could be a boon for the company.

We are impressed with the company’s efforts to reward its stockholders with a quarterly dividend on its 5.50% Mandatory Convertible Preferred Stock (“Preferred Stock”), payable on Jun 15, 2017 to holders of record as of Jun 1, 2017.

Earnings Whispers

Our proven model does not conclusively show that T-Mobile US is likely to beat on earnings this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: T-Mobile US has an Earnings ESP of -19.44%. This is because the Most Accurate estimate stands at 29 cents while the Zacks Consensus Estimate is pegged at 36 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: T-Mobile US has a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

T-Mobile US, Inc. Price and EPS Surprise

T-Mobile US, Inc. Price and EPS Surprise | T-Mobile US, Inc. Quote

Key Pick

MSCI Inc. MSCI from the Zacks categorized broader Computer and Technology sector, which houses T-Mobile US, has the right combination of elements to post an earnings beat insecond-quarter 2017 results on Aug 3, 2017. MSCI has an Earnings ESP of +2.22% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Its earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 6.32%.

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