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Sprint (S) Up 25.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Sprint (S - Free Report) . Shares have added about 25.8% 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 catalysts.

Sprint's Q4 Loss Wider Than Expected, Revenues Beat

Sprint reported tepid fourth-quarter fiscal 2018 financial results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same. The company reported wider-than-expected loss for the quarter despite higher revenues.

Net Income

Quarterly net loss was $2,174 million or loss of 53 cents per share against net income of $69 million or 2 cents per share in the year-ago quarter. The sharp decline was primarily attributable to a non-cash goodwill impairment charge of $2 billion. The bottom line was wider than the Zacks Consensus Estimate of loss of 2 cents.

For fiscal 2018, Sprint recorded net loss of $1,943 million or loss of 48 cents per share against net income of $7,389 million or $1.81 per share in fiscal 2017. This was due to non-cash goodwill impairment charge of $2 billion in fiscal 2018 and income tax benefit of $7.1 billion in fiscal 2017.

Revenues

Quarterly total net operating revenues increased to $8,441 million from $8,083 million in the year-ago quarter driven by higher wireless revenues. The top line surpassed the Zacks Consensus Estimate of $8,171 million. Overall service revenues were $5,656 million, down from $5,866 million in the year-ago quarter, while overall equipment sales totaled $1,426 million, up from $1,081 million. Equipment rentals increased to $1,359 million from $1,136 million. For fiscal 2018, total net operating revenues increased to $33,600 million from $32,406 million in fiscal 2017.

Segmental Performance

Total net wireless operating revenues were $8,194 million compared with $7,790 million in the year-ago quarter, primarily due to higher equipment sales and rentals. Total service revenues declined to $5,409 million from $5,573 million. Postpaid revenues totaled $4,231 million and prepaid revenues were $886 million. Wholesale, affiliate and other revenues summed $292 million. The segment’s operating income was $501 million compared with $339 million in the year-ago quarter, benefiting from higher revenues. Adjusted EBITDA was $3,131 million compared with $2,816 million in the prior-year quarter for respective margins of 57.9% and 50.5%.

Net operating wireline revenues were $314 million compared with $344 million a year ago. Operating loss for the segment was $38 million compared with operating loss of $107 million in the year-ago quarter.

Other Operating Metrics

Total net operating expenses increased to $10,115 million from $7,847 million. Consequently, operating loss for the reported quarter was $1,674 million against operating income $236 million a year ago. Overall adjusted EBITDA was $3,136 million compared with $2,768 million and overall adjusted EBITDA margin improved to 55.4% from 47.2%.

Cash Flow and Liquidity

For fiscal 2018, Sprint generated $10,429 million of net cash from operating activities compared with $10,062 million a year ago. Adjusted free cash outflow was $914 million for fiscal 2018 against adjusted free cash flow of $945 million in fiscal 2017.

As of Mar 31, 2019, Sprint had $6,982 million of cash and cash equivalents with long-term debt, financing and capital lease obligations of $35,366 million compared with respective tallies of $6,610 million and $37,463 million on Mar,31, 2018.

Moving Forward

Sprint is on track to launch its mobile 5G network in nine of the largest cities in the country, namely Atlanta, Chicago, Dallas, Houston, Kansas City, Los Angeles, New York City, Phoenix and Washington, DC. Standards-based 5G devices from LG, HTC, and Samsung are also expected to be available soon. We believe that Sprint’s strategy of balancing growth and profitability while increasing network investments and adding digital capabilities will likely drive its financial performance in the coming quarters. Also, the company’s multi-year plan to improve cost structure, and its "Unlimited for All" plan designed for customers, bode well.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -145.99% due to these changes.

VGM Scores

Currently, Sprint has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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