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Why Is Sprint (S) Up 8.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Sprint (S - Free Report) . Shares have added about 8.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sprint due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sprint Surpasses Earnings and Revenue Estimates in Q1

Sprint reported healthy first-quarter fiscal 2018 results, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.  

Net Income

Quarterly net income fell to $176 million or 4 cents per share from $206 million or 5 cents per share in the year-ago quarter, primarily due to higher operating expenses. However, reported earnings beat the Zacks Consensus Estimate by 5 cents.     

Revenues

Total net operating revenues decreased to $8,125 million from $8,157 million in the year-ago quarter due to unstable revenue trends. The top line, however, beat the Zacks Consensus Estimate of $8,044 million. Service revenues were $5,740 million, down from $6,071 million in the year-ago quarter. Equipment sales totaled $1,173 million, down from $1,187 million. Equipment rentals increased to $1,212 million from $899 million.

Segmental Performance

Total net wireless operating revenues were $7,845 million compared with $7,810 million in the year-ago quarter. Postpaid revenues totaled $4,188 million and prepaid revenues were $982 million. Wholesale, affiliate and other revenues were $290 million.

Operating income was $1,002 million compared with $1,178 million in the year-ago period as the company battled intense price wars amid cut-throat competition. Adjusted EBITDA was $3,318 million compared with $2,866 million in the year-ago quarter. Adjusted EBITDA margin improved to 60.8% from 50.1% in the prior-year quarter.

Net operating wireline revenues were $338 million compared with $433 million a year ago. Operating loss for the segment was $96 million compared with a loss of $67 million in the year-ago period. Adjusted EBITDA was a negative of $42 million compared with a negative $11 million in the year-ago quarter. Adjusted EBITDA margin was a negative 12.4% compared with negative 2.5% in the prior-year quarter.

Operating Metrics

Total net operating expenses increased to $7,310 million from $6,994 million in the year-ago quarter. Operating income for the reported quarter was $815 million compared with $1,163 million a year ago due to higher operating expenses.

Overall adjusted EBITDA was $3,280 million compared with $2,853 million in the year-ago quarter and adjusted EBITDA margin improved to 57.1% from 47%.  

Cash Flow

For first-quarter fiscal 2018, Sprint’s net cash provided by operations was 2,430 million compared with $1,924 million in the prior-year quarter.

Adjusted quarterly free cash flow was $8 million compared with $368 million in the year-ago quarter.

Liquidity

As of Jun 30, 2018, Sprint had $4,378 million of cash and cash equivalents with long-term debt, financing and capital lease obligations of $35,771 million.

Fiscal 2018 Guidance

Sprint has increased its adjusted EBITDA estimates on a reported basis to a range of $12 billion to $12.5 billion up from the previous guidance of $11.6 billion to $12.1 billion, due to impacts of the new revenue recognition standard.

Excluding the impact of the new revenue recognition standard, it expects fiscal 2018 adjusted EBITDA between $11.3 billion and $11.8 billion.

Cash capital expenditures, excluding leased devices, are projected in the range of $5 billion to $6 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 50% due to these changes.

VGM Scores

Currently, Sprint has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sprint has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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