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Telephone and Data Systems (TDS): Q2 Earnings Preview

Telephone and Data Systems Inc.TDS , a leading provider of telecommunications services, is slated to report second-quarter 2016 results on Aug 5, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 50.00%. However, the company's earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 649.02%. Let's see how things are shaping up for this announcement.

TELEPHONE &DATA Price and EPS Surprise

TELEPHONE &DATA Price and EPS Surprise | TELEPHONE &DATA Quote

Factors at Play

Telephone & Data Systems is striving to expand its business in the managed hosting and cloud service market. Providing a new cloud-based storage service should help the company arrest churn by creating an add-on revenue stream and drawing new broadband customers. Meanwhile, the company's wireless business is expected to record strong results owing to increased handset offerings, shared data plans for consumers and businesses, equipment financing and expansion of the LTE technology. Telephone and Data Systems' cash position and liquidity are also impressive because of its flexibility and vast scope for investments.

In June this year, Telephone and Data Systems earned a position in Fortune 500's annual list of the largest corporations in the United States, in terms of revenues. Meanwhile, Telephone and Data Systems' subsidiary, OneNeck IT Solutions, recently signed a multi-year contract with Braun Intertec to become the latter's hybrid IT partner.

However, intense competition and roaming revenues related woes raise concern. Additionally, high costs associated with network integration and construction of new cell sites, aggressive equipment pricing, expansion of capacity in existing cell sites, wireless technology upgrades and spectrum licensing are also likely to exert pressure on the company's finances.

Earnings Whispers

Our proven model does not conclusively show that Telephone and Data Systems is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both 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: Telephone and Data Systems has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 16 cents.

Zacks Rank: Telephone and Data Systems has a Zacks Rank #3 which increases the predictive power of ESP. However, the company's 0.00% ESP makes surprise prediction difficult.

Meanwhile,we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter.

MKS Instruments Inc. MKSI , with an earnings ESP of +2.60% and a Zacks Rank #1.

Plexus Corp. PLXS , with an earnings ESP of +1.25% and a Zacks Rank #2.

CDK Global, Inc. CDK , with an earnings ESP of +2.08% and a Zacks Rank #2.

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MKS INSTRUMENTS (MKSI): Free Stock Analysis Report

CDK GLOBAL INC (CDK): Free Stock Analysis Report

TELEPHONE &DATA (TDS): Free Stock Analysis Report

PLEXUS CORP (PLXS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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