) is slated to report its second-quarter 2014 financial results on
Jul 30. In the last reported quarter, the company had delivered a
33.3% positive earnings surprise. Let's see how things are shaping
up prior to this announcement.
Factors at Play this Quarter
Sprint is progressing on its network modernization and
integration efforts, which will fortify its position in the
wireless industry. Sprint's core platform business depends upon the
success of its multi-billion dollar restructuring program known as
Network Vision. Sprint expects the Network Vision deployment to be
over by mid-2014. Through this plan, the company is concentrating
on the core Sprint platform, which includes CDMA, WiMAX and LTE
technologies that led to the eventual termination of the Nextel
platform (iDEN business) in Jun 2013. The company began the
deployment of CDMA voice on 800 MHz in early 2013 and now has sites
on air at approximately two-thirds of its markets. In addition,
over 40% of its post-paid base has 800-megahertz voice capable
devices. Further, the company plans to deploy 8T8R equipment on its
existing network by mid 2014. In addition, the company is also
expanding its wireless services in the automotive market and has
struck a deal with Rogers Communications Inc. (
) to offer telematics services in Canada.
As part of the Network Vision strategy, in 2013, Sprint launched
4G LTE in 340 markets, covering more than 200 million point of
presence (POPs), and expects to cover approximately 250 million LTE
POPs by second half of 2014. In terms of 3G infrastructure, the
company expects to see a 25% increase in 3G data speeds with new
equipment and enhanced backhaul. The company also remains focused
on developing the HD voice platform, which is expected to cover the
entire nation by mid-2014.
However, given more than 95% U.S. wireless penetration,
competition is likely to remain intense, which could pressurize top
and bottom-line results as carriers compete for market share.
Although Sprint has started reducing its net loss in the post-paid
subscriber base, we remain concerned about the return of this trend
in the future. If this trend does not continue, revenues from
Sprint's wireless segment will come under pressure once again as it
has been in the past several years. The decline in Sprint's
post-paid customer base is primarily attributable to intense price
competition, ineffective marketing, less favorable network quality
and delays in network modernization. As a result, the company
expects increased post-paid churn in the first half of 2014 and is
optimistic about a minor recovery in the second half.
On the flip side, Sprint apprehends a significant decline in
Wireline adjusted EBITDA, both sequentially and year over year. On
a full-year basis, the company expects Wireline adjusted EBITDA to
decline approximately $400 million, with roughly $150 million being
intercompany related. In addition, the carrier expects reduction in
post-paid revenue per unit owing to introduction of cheaper plans
such as Sprint Framily and Sprint Easy Pay equipment financing
program. However, lower subsidy expenses are expected to partially
offset these headwinds. Going forward, capital expenditure for the
year is expected to increase to an estimated $8 billion owing to
investment in Network Vision in the first half of 2014 along with
expansion of Sprint Spark through 2014.
Our proven model does not conclusively show that Sprint is
likely to beat earnings this quarter.This is because a stock needs
to have both a positive
and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to
happen. Conversely, we caution against stocks with Zacks Ranks #4
and 5 (Sell-rated stocks) going into the earnings announcement,
especially when the company is seeing a negative estimate revision
Currently, the Zacks Consensus Estimate for the second quarter loss
per share is pegged at 4 cents, representing an improvement of
87.7% on a year-over-year basis, while the Most Accurate estimate
for loss per share is also 4 cents. As a result, Earnings ESP,
which represents the difference between the Most Accurate estimate
and the Zacks Consensus Estimate, stands at 0.00% for Sprint.
Sprint carries a Zacks Rank #3, which increases the predictive
power of ESP. However, when combined with a 0.00% ESP, it lowers
the possibility of an earnings surprise.
Other Stocks to Consider
Here are some companies to consider as our model shows that
these have the right combination of elements to post an earnings
beat this quarter:
TELUS Corporation (
), with earnings ESP of +1.85% and a Zacks Rank #2.
BCE Inc. (
), with earnings ESP of +1.28% and a Zacks Rank #2.
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