Can T-Mobile US (TMUS) Pull a Surprise in Q2 Earnings?

Zacks Equity Research Published on July 25, 2016

U.S.national wireless carrier T-Mobile US Inc. (TMUS - Free Report) is slated to report second-quarter 2016 financial numbers, before the opening bell on Jul 27.

Last quarter, T-Mobile US posted a positive earnings surprise of 211.11%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 122.88%. Let’s see how things are shaping up for this announcement.

Factors at Play

T-Mobile US introduced the ‘Get Thanked’ program to carry out a series of free giveaways and cash credits to minimize churn. However, its latest ‘Stock Up’ promotional campaign is an innovative idea of granting a stock to its postpaid customers. We believe robust customer addition, particularly of branded postpaid customers, 4G LTE network expansion and the rising popularity of the Un-Carrier business will not only boost revenues but will also lend a competitive edge to the carrier. Further, continuous launch of low-priced service plans should lure subscribers for T-Mobile US from competitors, particularly those who are cost-sensitive.

However, T-Mobile US operates in a highly competitive and saturated wireless market where success depends on technical superiority, quality of services and scalability. Hence, intense competition could limit the company’s ability to attract and retain customers and adversely affect its results. Moreover, such offers at discounted prices may dent the company’s margins. T-Mobile US has also been facing increased scrutiny into its working conditions by institutional investors.

Earnings Whispers

Our proven model does not conclusively show that T-Mobile US is likely to beat the Zacks Consensus Estimate this quarter. This is because 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. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: T-Mobile US has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 22 cents.

Zacks Rank: T-Mobile US has a Zacks Rank #3 (Hold) which increases the predictive power of ESP.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies to consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Open Text Corporation (OTEX - Free Report) , with an earnings ESP of +1.10% and a Zacks Rank #1.

LG Display Co. Ltd. (LPL - Free Report) , with an earnings ESP of +50.00% and a Zacks Rank #2.

Charter Communications Inc. (CHTR - Free Report) , with an Earnings ESP of +404.76% and a Zacks Rank #2.

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