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Sprint vs. CenturyLink: Which Stock to Bet on Post Earnings?

Zacks Equity Research
Updated

As the curtains roll down over March-quarter earnings, industry peers are doing various analysis and comparisons to gauge the underlying metrics and relative performance. Let us perform a similar comparative analysis between two stocks in the Zacks Wireless National industry — Sprint Corporation S and CenturyLink, Inc. CTL — to pick the better investment option.  

Earnings Scoresheet

Sprint reported healthy fourth-quarter fiscal 2017 results, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate. The company delivered record financial results with highest ever net income and operating income in fiscal 2017. Net income for the reported quarter improved to $69 million or 2 cents per share from a net loss of $283 million or 7 cents per share in the year-ago quarter, supported by lower operating expenses and income tax benefit. The bottom line surpassed the Zacks Consensus Estimate of a loss of 6 cents. Total quarterly revenues decreased 5.3% year over year to $8,083 million due to unstable revenue trends. The top line, however, beat the Zacks Consensus Estimate of $7,999 million.

CenturyLink reported mixed results for the first quarter of 2018 with net income of $115 million or 11 cents per share compared with $163 million or 30 cents per share in the year-ago quarter. The year-over-year decrease in earnings despite higher revenues was primarily due to higher operating expenses. Adjusted earnings for the quarter were 25 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 15 cents. Total operating revenues increased 41% year over year to $5,945 million due to incremental revenues from Level 3. The top line, however, missed the Zacks Consensus Estimate of $5,963 million.

Based on the recent earnings, Sprint has a clear edge over CenturyLink due to a better earnings and revenue surprise percentage.

Price Performance

Over the past six months, CenturyLink has clearly outperformed Sprint with an average return of 34.6% against a loss of 15.7% for the latter while the industry declined 3.2%.  



Guidance

Sprint expects fiscal 2018 adjusted EBITDA between $11.3 billion and $11.8 billion owing to stabilizing service revenues and continued focus on improving cost structure. Cash capital expenditures, excluding leased devices, are projected in the range of $5 billion to $6 billion, as Sprint will deploy next-gen network and prepaid for 5G in the first half of calendar 2019. It expects differentiation on leased devices in fiscal 2018 to be between 4.2 billion and 4.5 billion.

For 2018, CenturyLink has reiterated its adjusted EBITDA and free cash flow outlook. Adjusted EBITDA is anticipated in the range of $8.75-$8.95 billion. Free cash flow is expected within $3.15-$3.35 billion. Free cash flow after dividends is projected between $0.85 billion and $1.05 billion. Capital expenditures are likely to be around 16% of revenues.

Estimate Revisions

Post earnings release, Sprint’s current-quarter estimates increased from breakeven to 1 cent per share, while that for the current fiscal improved from a loss of 6 cents to loss of 5 cents.

CenturyLink’s current-quarter estimates increased to 21 cents from 18 cents post earnings release while current-year estimates jumped to 89 cents per share from 62 cents. With positive estimate revisions, investor sentiments appear to be more bullish on CenturyLink than Sprint.

Zacks Rank

Both Sprint and CenturyLink currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

To Sum Up

Based on the current scenario, CenturyLink seems to have trumped Sprint on most fronts and stands out as a better investment option.

A couple of top-ranked stocks in the industry are Motorola Solutions, Inc. MSI and Ubiquiti Networks, Inc. UBNT, both carrying a Zacks Rank #2 (Buy).

Motorola has a long-term earnings growth expectation of 8%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 12.1%.

Ubiquiti Networks has a long-term earnings growth expectation of 18.6%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 8.9%.

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Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
 
Ubiquiti Networks, Inc. (UBNT) : Free Stock Analysis Report
 
Sprint Corporation (S) : Free Stock Analysis Report
 
CenturyLink, Inc. (CTL) : Free Stock Analysis Report
 
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Zacks Investment Research