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Ericsson (ERIC) Q1 Earnings: What Lies Ahead for the Stock?

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Ericsson (ERIC - Free Report) is scheduled to report first-quarter 2018 results before the opening bell on Apr 20. The company has a woeful earnings history, with consecutive colossal earnings misses. Last quarter, the company missed estimates for the eighth consecutive quarter, recording a massive negative surprise of 450%. Ericsson witnessed an average negative surprise of 552.5% for the trailing four quarters.

Let's see how things are shaping up for this announcement and whether Ericsson is set to witness yet another earnings miss.

Factors to Consider

The information and communications technology solutions provider is grappling with shrinking markets and stiff competition from other established players in the market. Moreover, slowdown in spending by wireless carriers severely hurt the company’s financials over the past few quarters and is likely to affect the upcoming results.

Most of the company’s troubles have stemmed from the drying up of investments by major telecom equipment makers across the world. The company’s revenues and margins in the Networks and IT & Cloud segments continue to take a beating from adverse industry trends.

Further, Ericsson foresees sustained weakness in the market for radio access networks. Network equipment sales, particularly in North America and Europe, continue to contract. Europe and Latin America — the markets with the biggest impact — are likely to have an increasingly challenging investment environment in the quarters to come.

Soft mobile broadband demand and slowdown in emerging markets will continue to put a significant dent in Ericsson’s performance. These factors will likely manifest in the company’s sales in the to-be-reported quarter.

Despite these challenges, Ericsson remains the world’s largest supplier of LTE technology, with significant market share and a large number of LTE networks worldwide. The company envisions healthy traction in its 4G portfolio and 5G readinesses. At the same time, Ericsson is continuing with steady investment in R&D, technology leadership and gross margin improvement. The company is trimming its workforce to reduce operating costs and improve bottom line.

Ericsson is seeking to seize business opportunities as operators shift toward 4G deployments and prepare ground for the forthcoming 5G revolution. The company plans to focus more intently on software sales and recurring business that complements its thriving Professional Services business in terms of “targeted growth” investments. Ericsson expects to be better-equipped to address the varied needs of its customer segments and tap new markets to foster growth.

Earnings Whispers

Our proven model does not conclusively show that Ericsson is likely to beat earnings this quarter as it does not possess 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 not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is 0.00% with both pegged at a loss of 3 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 Quote

Zacks Rank: Ericcson has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident about an earnings surprise.

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 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:

American Airlines Group Inc. (AAL - Free Report) has an Earnings ESP of +3.35% and Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

BB&T Corporation has an Earnings ESP of +1.63% and carries a Zacks Rank #3.

The Bank of New York Mellon Corporation (BK - Free Report) has an Earnings ESP of +0.21% and carries a Zacks Rank of 3.

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