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Sprint (S) Q1 Earnings: Is Disappointment in the Cards?

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U.S. national wireless carrier, Sprint Corporation (S - Free Report) is scheduled to report first-quarter fiscal 2017 financial numbers on Aug 1, before market opens.

Last quarter, the company posted a negative earnings surprise of 75%. Moreover, the company’s earnings failed to surpass the Zacks Consensus Estimate in two of the last four quarters, with an average miss of 14.29%.

The price performance of Sprint was not quite impressive over the past three months. The stock lost 5.3% whereas the industry declined 6.7% over the same time frame.

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

Factors at Play                                                                      

The U.S. wireless industry has become intensely competitive because of the presence of spectrum crunch, the growing popularity of iPhone and Android smartphones as well as threats from online mobile video streaming, cloud computing and video conferencing services.

As the U.S. boasts a high rate (95%) of wireless penetration, competition in this space is intense, with participants like Verizon Communications, AT&T Inc. (T - Free Report) , T-Mobile US Inc. (TMUS - Free Report) . This, in turn, may pressurize Sprint’s top and bottom lines.

Sprint has been continually making efforts to lure customers from rival carriers by offering attractive promotional plans and lucrative discounts. The marketing costs of such promotions raises concern by causing high cash burn and heavy losses for the company and may even impede margins in the coming quarters.

Moreover, the company has a debt-laden balance sheet and has been witnessing losses each year since 2007.

However, Sprint is on track with its network modernization and integration efforts, which should fortify its position in the wireless industry.

Earnings Whispers

Our proven model does not conclusively show that Sprint is likely to beat on earnings 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. That is not the case here, as you will see below.

Zacks ESP:Sprint has an Earnings ESP of -200%. This is because the Most Accurate estimate stands at a loss of 3 cents, and the Zacks Consensus Estimate stands at a loss of a penny. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sprinthas a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s -200% ESP makes surprise prediction difficult.

Sprint Corporation Price and EPS Surprise

 

Sprint Corporation Price and EPS Surprise | Sprint Corporation Quote

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

Key Pick

SBA Communications Corporation (SBAC - Free Report) from the broader sector has the right combination of elements to post an earnings beat when it expectedly reports second-quarter 2017 results on Jul 31. The company has an Earnings ESP of +10% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SBA Communications earnings surpassed the Zacks Consensus Estimate in one of the previous four quarters, with an average miss of 66.45%.

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