Can Solid Wireless Revenues Buoy Sprint's (S) Q3 Earnings?

Sprint Corporation (NYSE:S) is scheduled to release third-quarter fiscal 2018 results before the opening bell on Jan 31. The company is poised to witness solid traction from the impending 5G boom and is likely to record higher year-over-year revenues from the Wireless segment, which accounts for the lion’s share of total revenues.

Whether this will benefit the bottom line of the company remains to be seen.

Top-Line Expansion

Sprint offers a comprehensive range of wireless and wireline communications products and services for individual consumers, businesses, government subscribers and resellers. The company’s strategy of balancing growth and profitability while increasing network investments and adding digital capabilities will likely drive its financial performance in the quarter. Also, Sprint’s multi-year plan to improve cost structure and its "Unlimited for All" plan offer for customers bode well.

Moreover, Sprint is coming up with new ideas and solutions to help business enterprises improve their relation with employees and better serve customers. The Sprint MultiLine, an enterprise-grade solution within Bring Your Own Device (BYOD) portfolio, delivers a solution that allows businesses to add a company-owned number to their employees' personal phones for calling and texting on any mobile device and on any underlying carrier. This aids large enterprises as well as small and medium size businesses to overcome challenges in the ever-growing BYOD environment. The company expects demand for BYOD to have grown heavily in the quarter.

Sprint continues to build a solid 5G device portfolio so that its users can be among the first to experience Sprint 5G in 2019. During the quarter, Sprint joined forces with HTC to bring a powerful 5G mobile smart hub to customers in an effort to outstrip competition. This breakthrough device will enable customers to experience Sprint 5G on multiple devices for content sharing, mobile gaming and entertainment among others with incredibly fast connectivity.

Massive MIMO technology is integral to Sprint's 5G strategy and network build. The technology augments the capacity of the company’s LTE Advanced network and is software upgradable to 5G. With this, Sprint is likely to meet customers’ need for unlimited data and high-bandwidth applications. Notably, 5G will enable faster speeds and low latency wireless connectivity. It is touted to be the primary catalyst for next-generation Internet of Things services, which include connected cars along with augmented reality and virtual reality platform, television in high definition, smart cities and connected devices among others.

Buoyed by such tailwinds, the Zacks Consensus Estimate for operating revenues in the Wireless segment in the to-be-reported quarter is currently pegged at $8,237 million, which is relatively higher than the year-ago reported figure of $7,928 million. The higher revenue expectations can be attributed to an uptick in demand and an upgrade to state-of-the-art infrastructure.

Total revenues for the company are expected to be $8,403 million. It generated revenues of $8,239 million in the prior-year quarter.

Other Key Factors

The company has inked a merger deal with T-Mobile US, Inc. in an all-stock transaction. The deal would help to accelerate development of faster 5G wireless networks and result in about $6 billion in annual cost savings. The combined entity would have about 127 million customers. It will be a force to reckon with in the U.S. wireless, video and broadband industries. The new company will 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 continue leading in the 5G era. Although the transaction is expected to close by the first half of 2019, it has helped the company to attract key investments across the market to maintain a healthy demand curve.

Our proven model shows that Sprint is likely to beat earnings in the quarter as it possesses the 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 perfectly the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +13.33%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sprint has a Zacks Rank #2. This increases the predictive power of our model and makes 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.

Other Stocks to Consider

Here are some other 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. (NYSE:T) is slated to release quarterly numbers on Jan 30. It has an Earnings ESP of +1.39% and a Zacks Rank #3.

Motorola Solutions, Inc. (NYSE:MSI) is scheduled to release results on Feb 7. The company has an Earnings ESP of +1.73% and has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Arista Networks, Inc. (NYSE:ANET) is +2.72% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 14.

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