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Can Higher Revenues Buoy T-Mobile's (TMUS) Q4 Earnings?

Zacks Equity Research

T-Mobile US, Inc. TMUS is scheduled to report fourth-quarter 2018 results before the opening bell on Feb 7. In the last reported quarter, the company delivered a positive earnings surprise of 9.4%. Notably, T-Mobile surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 13.2%.

The wireless carrier is likely to report higher revenues in the quarter on the back of customer growth, which benefited from coverage expansion and industry-leading network performance, including 4G LTE speeds. 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

During the fourth quarter, T-Mobile received shareholder approval for its proposed merger with Sprint. This marked a step forward in creating the New T-Mobile through which the company aims to bring strong competition to the 5G era while providing subscribers more options for less money. The company also announced that it has received approval from the Committee on Foreign Investment in the United States for the merger. Team Telecom, which comprises the U.S. Department of Justice, Department of Homeland Security and Department of Defense, gave its green signal, which will boost T-Mobile’s network expansion strategy and help it downplay competitive pressure within the U.S. wireless market. The New T-Mobile will likely have the network capacity to rapidly create a nationwide 5G network with the breadth and depth needed to enable U.S. firms and entrepreneurs to lead in the 5G world.

Moreover, T-Mobile inched a step closer to building a nationwide 5G network with the successful completion of the world’s first 5G data transmission on low-band spectrum (600 MHz). The company achieved this unique feat in association with Nokia using global 5G standards in Spokane, WA. The company is well underway to deliver nationwide 5G in 2020, deploying 5G-ready equipment as it rolls out 600 MHz Extended Range LTE, which is now live in more than 1,500 cities and towns in 37 states and Puerto Rico.

Such benefits, which accrue from investments in network and customer experience, are expected to translate into top-line growth for the company in the quarter. The Zacks Consensus Estimate for net revenues from the Service segment, which accounts for the lion’s share of total revenues, is pegged at $8,251 million. Revenues from the Equipment segment are expected to be $2,819 million. Consequently, for the fourth quarter, the consensus estimate for total revenues stands at $11,414 million. The company reported $10,759 million in the year-earlier quarter. Adjusted earnings per share are pegged at 69 cents. The company reported earnings of 48 cents a year ago.

What Our Model Says

Our proven model does not conclusively show that T-Mobile is likely to beat earnings 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 will see below:

Earnings ESP: T-Mobile’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.77% as the former is pegged at 66 cents and the latter at 69 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. Quote

Zacks Rank: T-Mobile currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative Earnings ESP acts as a spoiler.

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 this quarter:

Constellation Pharmaceuticals, Inc. CNST has an Earnings ESP of +9.72% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ameren Corporation AEE has an Earnings ESP of +1.68% and a Zacks Rank #1.  

ALLETE, Inc. ALE has an Earnings ESP of +5.26% and a Zacks Rank #2.

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