Will T-Mobile US (TMUS) Disappoint Investors in Q4 Earnings?

U.S. national wireless carrier T-Mobile US Inc.TMUS is slated to report fourth-quarter 2016 results, before the opening bell on Feb 14.

Over the past three months, shares of T-Mobile US registered growth of 22.55%, outperforming the Zacks categorized Wireless National industry's gain of 8.86%.

Last quarter, T-Mobile US posted a positive earnings surprise of 22.73%. Moreover, the company's earnings surpassed the Zacks Consensus Estimate in all the previous four quarters, with an average beat of 107.70%. Let's see how things are shaping up for this announcement.

Let's see how things are shaping up for this announcement.

Factors at Play

We are impressed with T-Mobile US' innovative network expansion methodologies which have helped drive substantial consumer growth. These also help it to compete against market behemoths such as Verizon Communications Inc. VZ and AT&T Inc. T in the enterprise market.

To this end, T-Mobile US recently allowed us a sneak peek into its fourth-quarter results, prior to the scheduled release. T-Mobile US expects to witness strong postpaid subscriber growth in comparison to the third quarter of 2016. The company claimed to have added 2.1 million net customers, taking the total customer count to 71.5 million at 2016-end. It also saw renewed strength in branded postpaid customers, with an addition of 1.2 million in the quarter under review. Branded postpaid phone net customer addition totaled 933,000 and branded prepaid net customer addition was 541,000. Overall, T-Mobile US raised the subscriber gain outlook for full-year 2016.

Another noteworthy development is the participation of T-Mobile US in the 700 MHz A Block spectrum sale held at the Windy City of Chicago last May.

We also appreciate T-Mobile US' exceptional move to eradicate all additional fees and taxes on its unlimited data plans. It seems that T-Mobile US is consumer-friendly and thinks about their benefits and facilities also, apart from its own profits.

However, the company operates in a highly competitive and saturated wireless market where success depends on technical superiority, quality of services and scalability. T-Mobile US also faces increased scrutiny in its working conditions, lawsuits and fines by regulatory authorities and institutional investors. The launch of several low-priced service plans for individual consumers as well as small business entities in order to gain customers have failed to generate revenues to reward its shareholders.

Earnings Whispers

Our proven model does not conclusively show that T-Mobile US 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, this is not the case here as elaborated below.

Zacks ESP: T-Mobile US has an Earnings ESP of -3.45%. This is because the Most Accurate estimate stands at 28 cents while the Zacks Consensus Estimate is pegged at 29 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: T-Mobile US has a Zacks Rank #3 which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

T-Mobile US, Inc. Price and EPS Surprise

T-Mobile US, Inc. Price and EPS Surprise | T-Mobile US, Inc. Quote

Stock to Consider

Here is a company that has the right combination of elements to post an earnings beat this quarter.

Applied Optoelectronics, Inc. AAOI is scheduled to release fourth-quarter 2016 financial results on Feb 23, 2017. Its earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters that resulted in an average beat of 106.74%. It currently has an Earnings ESP of +15.87% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

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AT&T Inc. (T): Free Stock Analysis Report

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T-Mobile US, Inc. (TMUS): 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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