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T-Mobile (TMUS) Ticks Up Ahead of Earnings: What to Expect

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Shares of T-Mobile (TMUS - Free Report) ticked up 0.3% during regular hours Tuesday, a day before the energetic telecom firm releases its latest quarterly earnings report. U.S. stocks were mostly in the green, and investors were in good spirits as T-Mobile announced a $3.5 billion, multi-year 5G network agreement with Nokia (NOK - Free Report) .

T-Mobile shares have shed about 3% over the past year but have been as much as 10% in the red as it continues to battle it out with competitors in the highly competitive U.S. wireless market. The company is still behind its peers Verizon (VZ - Free Report) and AT&T (T - Free Report) when it comes to technical superiority, quality of services and scalability. TMUS has also incurred numerous costs through several low-priced service plans aimed at bringing new customers into its network.

The big news in Q2 was the agreement between T-Mobile and Sprint (S - Free Report) to merge. Upon completion, T-Mobile would boast a total subscriber network of 126 million, bringing it much closer to AT&T’s 141 million and Verizon’s 150 million. However, the deal is still subject to regulatory approval.

A solid earnings report will help investors believe that T-Mobile can continue to compete with industry peers, while also providing a clearer picture of the potential benefits that the merger would entail. But what should we expect from its soon-to-be-reported quarter? Let’s take a closer look.

Earnings Outlook

T-Mobile will release its Q2 fiscal 2018 results after the market closes on Wednesday. Here’s what analysts are expecting, according to our Zacks Consensus Estimates:

Earnings: TMUS is projected to report earnings of $0.86 per share, which would represent 28.3% growth from the year-ago period.

Estimate Revisions: The firm has seen 2 positive earnings estimate revisions in the past 30 days, but has also seen 5 downward projections during the same period. Moreover, estimates for next quarter, the current fiscal year, and next fiscal year have been somewhat split, but are trending negatively as well.   

Revenue: Consensus estimates have PFE’s Q2 revenue pegged at $10.64 billion. This would mark growth of 4.1% year-over-year.

Valuation

TMUS is trading at 17.3x forward 12-month earnings heading into today’s report. This represents a notable premium compared to the “Wireless National” industry’s average of about 11.6x, but is still comparatively “cheaper” than the stock has been over the last few years.

In the past year, TMUS has traded as high as 26.6x and as low as 15.4x. Its 52-week median earnings multiple is 20.9x.

Bottom Line

T-Mobile has done a solid job of climbing back into relevancy over the past few years. The company plans to launch its own streaming service in 2018, and has leaped ahead of its competition in the race to build a 5G network. Still, there is a lot of work to be done before it can be considered equal to its rivals.

TMUS shares not performed particularly well in the past year, so many investors may be more interested in sitting this one out and watching for any exciting news. Analyst revision activity for the quarter has been mixed, and TMUS has a Zacks Earnings ESP (Expected Surprise Prediction) of -1.81%.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Given the stock’s current Zacks Rank of #3 (Hold), this Earnings ESP value doesn’t leave us particularly confident about T-Mobile’s chances at beating estimates going into this afternoon’s report. Regardless, the firm’s ever-growing market share and growth potential make it a must-watch stock ahead of earnings.

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