Sprint (S) Poised To Beat Estimates This Earnings Season

U.S.national wireless carrier Sprint Corp. (NYSE:S) is slated to report fourth-quarter fiscal 2016 financial numbers before the opening bell on May 3.

Last quarter, the company posted a negative earnings surprise of 50.00%. However, the company’s bottom line surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average beat of 0.30%.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Sprint is likely to beat estimates because it has the right combination of the two key elements.

Zacks ESP: Sprint has an Earnings ESP of +25.00%. This is because the Most Accurate estimate stands at a loss of 3 cents while the Zacks Consensus Estimate is pegged at a loss of 4 cents. This is a meaningful indicator of a likely positive earnings surprise. 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 #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Sprint’s favorableZacks Rank and positive ESP makes us confident of a beat.

What is Driving the Better-than-Expected Results?

Sprint is on track with its network modernization and integration efforts, which has fortified its position in the wireless industry. We believe these efforts have helped the company witness substantial wireless customer addition in the last reported third quarter of fiscal 2016, in which the company added 577,000 wireless connections. We also believe that efficient usage of capital, reduction of cell sites, elimination of dual networks, backhaul efficiencies, reduced churn, lower roaming charges and energy cost savings will act as major positives to fourth-quarter results.

Sprint’s upgraded unlimited data plans along with the free offering of DISH Network Corp.’s (NYSE:S) Sling TV service have also heated up the wireless industry. Sprint’s venture into digital media and the content-driven market by inking different deals looks good.

We are also impressed with Sprint’s efforts to lure more customers through different winter promotional offers such as ‘Unlimited Freedom’ and ‘Sprint Open World’. However, attractive promotional plans and lucrative discounts to win customers from rival carriers such as AT&T (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) have resulted in high cash burn and heavy losses for Sprint. Also, while Sprint’s decision to skip the Federal Communications Commission’s 600 MHz low-band airwaves auction will save cash, it will limit scope for network upgrades and expansion. Additionally, the company has a debt-laden balance sheet and negative operating cash flow. Moreover, it has been witnessing losses since 2007.

The price performance is also depressing. Over the past three months, Sprint witnessed a loss of 2.2%. However, this compares favorably with the Zacks-categorized Wireless National industry’s fall of 3.2%.

Key Picks

Here is a company in the Zacks-categorized broader Computer and Technology sector — which houses Sprint — that has the right combination of elements to post an earnings beat this quarter.

Apple Inc. (NASDAQ:AAPL) is expected to release second-quarter fiscal 2017 results on May 3. The company has an Earnings ESP of +1.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple’s earnings beat the Zacks Consensus Estimate in three of the previous four quarters, with an average positive surprise of 0.89%.

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