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T-Mobile US (TMUS - Free Report) is scheduled to release fourth-quarter 2017 results on Feb 8, before the market opens.

The company has an impressive earnings surprise history. The company’s bottom line beat the Zacks Consensus Estimate in all of the previous four quarters, the average positive surprise being 53.97%.

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

Factors to Influence Q4 Earnings

T-Mobile Us is expected to deliver solid performance in the fourth quarter. In January 2018, the company revealed preliminary subscriber statistics for the to-be-reported quarter and 2017. The company gained a net of 5.7 million customers in 2017, which includes 3.6 million net customer additions in the postpaid segment. T-Mobile US exited 2017 with a total of 72.6 million customers. It was also the fourth consecutive year when the company gained more than 5 million subscribers. In the quarter under review, the company added a net of 1.9 million postpaid customers, making it the 19th straight quarter of more than 1 million net subscriber additions. In fourth-quarter 2017, customer churn was 1.18%, improving 10 basis points (bps) year over year and 5 bps sequentially.

Meanwhile, the company’s share repurchases look encouraging. In 2017, the company repurchased approximately 7.0 million shares at an average price of $63.34 per share. The total purchase price was around $444 million. On Dec 6, 2017, the company’s board of directors approved a $1.5-billion share repurchase program. Notably, the stock buybacks were backed by the company’s strong balance sheet and cash flow generation. The company is likely to maintain the flexible liquidity scenario in the upcoming quarter.

Additionally, the company’s rating was upgraded to Ba2 by Moody's, with its rating outlook being confirmed stable. The company decided to roll out 600 MHz wireless spectrum in its footprints and has conducted successful Narrowband Internet of Things (NB-IoT) tests, live on its commercial network. T-Mobile US is also planning to team up with dark fiber partners to backhaul small cell densification project.

On the flip side, the company continues to struggle in a highly competitive and saturated wireless market where success depends on technical superiority, quality of services and scalability. Moreover, the domestic wireless industry is likely to become more competitive in 2018 with the entry of cable operators like Comcast (CMCSA - Free Report) and Charter Communications (CHTR - Free Report) . Launch of several low-priced service plans for individual consumers and small business entities lead to high cash burn for the company.

Revenues

We expect T-Mobile US to see an improvement in revenues in the to-be-reported quarter.

The Zacks Consensus Estimate for Services revenues is pegged at $7,796 million. The estimate shows an improvement from $7,629 million and $7,245 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Within the Service segment, branded postpaid revenue estimate of $5,044 million is higher than $4,920 million and $4,680 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Branded prepaid revenues estimate of $2,409 million is higher $2,376 million and $2,227 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Wholesale revenues estimate of $262 million lags $274 million reported in the last quarter.

Roaming & other services revenues estimate of $74 million is higher than $59 million reported in the last quarter.

Equipment revenues estimate of $2,809 million is above $2,118 million and $2,740 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Price Performance

T-Mobile US portrays an impressive price performance. In the past three months, the stock has rallied 8.2% compared  with the industry’s gain of 6.8%.

 

 

When compared with the market at large, the stock compares favorably with the S&P 500 index’s rally of 2.2%.

 

 

T-Mobile US' innovative network expansion methodologies and improvement plans, stellar network performance, deployment of LTE-U technology and offering of attractive unlimited data are key factors behind the mounting performance. This is supported by improving scale, healthy free cash flow generation, strong liquidity and valuable spectrum assets that also provide credit support.

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 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 -6.73%. This is because the Most Accurate estimate is at 34 cents while the Zacks Consensus Estimate is pegged at 37 cents. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: T-Mobile US has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

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.

T-Mobile US, Inc. Price and EPS Surprise

 

T-Mobile US, Inc. Price and EPS Surprise | T-Mobile US, Inc. Quote

 

Key Pick

CenturyLink (CTL - Free Report) from the broader Computer and Technology sector has the right combination of elements to post an earnings beat in fourth-quarter 2017, slated to release on Feb 14. CenturyLink has an Earnings ESP of +14.87% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s sales for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 32.6% and 42.9%, respectively.

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