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Can Solid Top-Line Growth Buoy T-Mobile's (TMUS) Q2 Earnings?

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T-Mobile US, Inc. (TMUS - Free Report) is scheduled to report second-quarter 2020 results on Aug 6, after the closing bell. In the last reported quarter, the company delivered an earnings surprise of 23%. Notably, the company has a trailing four-quarter earnings surprise of 19.4%, on average.

The company is expected to have recorded higher aggregate revenues on a year-over-year basis on the inherent strength of its business model, supported by customer growth on completion of its merger with Sprint and deployment of a nationwide 5G network.

Let’s discuss the factors that are likely to influence the upcoming quarterly announcement.

Factors at Play

During the quarter under review, T-Mobile closed its long-pending merger with Sprint to create a new wireless giant that rivals AT&T and Verizon in terms of subscribers. The deal allowed the companies to join their high- and low-band spectrum for a faster nationwide 5G rollout, which disrupted the competitive landscape of the U.S. telecom market. The company deployed 5G with a mid-band 2.5 GHz spectrum from Sprint, with the service currently live in parts of Chicago, Houston, Los Angeles, New York and Philadelphia. This is likely to have aided the top line of the company in the quarter to be reported.

In the second quarter, T-Mobile achieved a historic milestone by offering 5G services across all 50 states in the country. The feat showcases the inherent strength of its resilient business model amid a competitive and cut-throat business environment. The revamped T-Mobile will compete at all price points for customers. On the other hand, customers including prepaid and Lifeline, will eventually benefit by gaining access to the same 5G network and services at affordable prices. T-Mobile’s commitment to build the world’s best nationwide 5G network will likely bring super-fast speeds to urban areas and underserved rural communities. The combined company’s network will have 14 times more capacity than on a standalone basis, which enables it to leapfrog the competition in network capability and customer experience. The company’s second-quarter performance is expected to have benefited from these developments.

However, high infrastructure investments for nationwide 5G deployment are likely to have led to soft margins during the quarter. In addition, low-priced plans to lure customers are expected to have hurt its bottom line.

The Zacks Consensus Estimate for revenues in the Service segment, which account for the lion’s share of total revenues, is pegged at $13,520 million. This indicates an increase of 60.5% from the year-ago quarter’s reported figure. Revenues in Equipment are estimated to be $3,315 million, which calls for a rise of 46.5% from the prior-year quarter’s reported figure.

For the June quarter, the Zacks Consensus Estimate for total revenues is pegged at $17,773 million that indicates a rise of 61.9% from the year-ago quarter’s reported figure. Adjusted earnings are pegged at 35 cents per share, which calls for a decline of 72.9% from the prior-year quarter’s recorded figure.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for T-Mobile this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Earnings ESP: T-Mobile’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -40.99% as the former is pegged at 21 cents and the latter at 35 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

TMobile US, Inc. Price and EPS Surprise

TMobile US, Inc. Price and EPS Surprise

TMobile US, Inc. price-eps-surprise | TMobile US, Inc. Quote

Zacks Rank: T-Mobile currently sports a Zacks Rank #1.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Watts Water Technologies, Inc. (WTS - Free Report) is set to release quarterly numbers on Aug 3. It has an Earnings ESP of +18.38% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for InterDigital, Inc. (IDCC - Free Report) is +4.28% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Aug 6.

The Earnings ESP for Maxar Technologies Ltd. (MAXR - Free Report) is +31.71% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Aug 5.

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