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Ericsson (ERIC) Gears Up for Q3 Earnings: What's in Store?

Zacks Equity Research

Ericsson ERIC is scheduled to report third-quarter 2019 results before the opening bell on Oct 17. In the last reported quarter, the company missed the Zacks Consensus Estimate for earnings by a penny.  Ericsson delivered a trailing four-quarter average positive earnings surprise of 24.1% despite missing estimates twice.

The Swedish telecom equipment maker is likely to report lower revenues on a year-over-year basis in the to-be-reported quarter due to fierce competition. It competes in a highly price-sensitive market, which has major presence of rivals like Nokia and Huawei.

Factors to Influence Results

During the third quarter, Ericsson witnessed a strong momentum in its 5G business with new contracts and commercial launches as well as live networks. Ericsson is currently live with commercial 5G in 19 customer networks across 15 countries, spanning four continents. The company in concert with RCS & RDS (DIGI) — the Romanian business unit of Digi Communications N.V. — introduced Romania’s first 5G commercial service in the busiest areas of Bucharest.

In partnership with Vodafone Group Plc, Ericsson introduced Vodafone U.K.’s 5G service with unlimited data plans for consumers and business customers. The move emphasizes Ericsson’s sustained focus on working closely with communication service providers in a bid to drive 5G in Europe.

On Sep 25, 2019, Ericsson communicated that its third-quarter 2019 results will be impacted by a 12 billion Swedish krona provision. This is due to a possibility of unfavorable outcome of the ongoing investigations by U.S. authorities into its business ethics breaches in six countries — China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam.

The Zacks Consensus Estimate for total revenues is pegged at $5,903 million. The company reported $6,418 million in the year-ago quarter. Consequently, adjusted earnings per share are pegged at 8 cents. Adjusted earnings reported a year ago were 12 cents.

What Our Model Says

Our proven model does not show that Ericsson is likely to beat earnings estimates this quarter as it does not possess one of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you’ll see below:

Earnings ESP: Ericsson’s Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is -12.50% as the former is pegged at 7 cents and the latter at 8 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ericsson Price and EPS Surprise

Ericsson Price and EPS Surprise

Ericsson price-eps-surprise | Ericsson Quote

Zacks Rank: Ericsson currently has a Zacks Rank #3. Although this increases the predictive power of ESP, we need a positive ESP to make us reasonably confident of an earnings beat.

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

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

AT&T Inc. T is slated to release quarterly results on Oct 23. It has an Earnings ESP of +0.50% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Verizon Communications Inc. VZ is scheduled to release results on Oct 25. The company has an Earnings ESP of +0.21% and carries a Zacks Rank #2.

Earnings ESP for The Procter & Gamble Company PG is +0.60% and it carries a Zacks Rank of 2. The company is likely to report results on Oct 22.

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