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Will Higher Revenues Buoy T-Mobile's (TMUS) Q2 Earnings?

Zacks Equity Research

T-Mobile US, Inc. TMUS is scheduled to report second-quarter 2019 results on Jul 25, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 23.2%. Notably, T-Mobile surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average beat being 12.1%.

The wireless carrier is likely to report higher year-over-year revenues on the back of solid customer growth and low postpaid phone churn. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors at Play

Investments in new geographies, customer segments and customer care continued to fuel T-Mobile’s momentum. The company has been witnessing strong response from new customer segments and rate plans, including T-Mobile for Business.

During the second quarter, the company inked a major content distribution agreement with Viacom — the owner of Nickelodeon, MTV, Comedy Central and Paramount Pictures. The move played an important role in T-Mobile’s delivery of new mobile video services to consumers. The multi-year deal allowed T-Mobile to bring together live linear feeds of Viacom channels along with a range of on-demand content for about 80 million customers.

Further, T-Mobile unveiled an enhanced version of its Layer3 TV service with advanced features — TVision Home. The company also entered into a deal with Amazon to add Prime Video to TVision Home. Markedly, the deal enabled T-Mobile to offer TVision customers with various live feeds and prime content via the Prime Video application. Such tailwinds are expected to get translated into top-line growth.

Moving on, the Zacks Consensus Estimate for revenues from Service, which accounts for the lion’s share of total revenues, is pegged at $8,433 million, up from $8,277 million reported in the preceding quarter. Revenues from Equipment are estimated to be $2,410 million compared with $2,516 million reported in the previous quarter.

Total revenues for the June quarter are estimated to rise to $11,139 million from $10,571 million, reported in the prior-year quarter. Adjusted earnings per share are pegged at 99 cents. The company reported earnings of 92 cents a year ago.

What Our Model Says

Our proven model does not conclusively show that T-Mobile is likely to beat earnings estimates in the to-be-reported 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: T-Mobile’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.44% as the former is pegged at 95 cents and the latter at 99 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

T-Mobile US, Inc. Price and EPS Surprise

T-Mobile US, Inc. Price and EPS Surprise

T-Mobile US, Inc. price-eps-surprise | T-Mobile US, Inc. Quote

Zacks Rank: T-Mobile currently carries a Zacks Rank #2. Although this increases the predictive power of ESP, we need a positive Earnings ESP to make us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) 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 in the quarter to be reported:

Dolby Laboratories, Inc. DLB has an Earnings ESP of +21.15% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

TELUS Corp. TU has an Earnings ESP of +2.61% and a Zacks Rank #2.

Ciena Corp. CIEN has an Earnings ESP of +5.26% and a Zacks Rank #2.

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