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Ericsson (ERIC) to Report Q3 Earnings: What's in Store?

Zacks Equity Research
·5-min read

Ericsson ERIC is scheduled to report third-quarter 2020 results on Oct 21, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 42.9%. The bottom line surpassed the Zacks Consensus Estimate by 3 cents.

The Sweden-based telecom equipment provider is likely to have recorded higher aggregate revenues year over year, despite the COVID-19 pandemic and related macroeconomic woes. The performance can broadly be attributed to strong momentum for 5G deployments. Importantly, R&D investments have established Ericsson as a leader in 5G.

Let’s discuss the factors that are likely to get reflected in the upcoming quarterly announcement.

Factors at Play

During the quarter under review, Ericsson was selected by Groupe ADP, its subsidiary Hub One and Air France to deploy a private mobile network covering Paris-Charles de Gaulle, Paris-Orly and Paris-Le Bourget airports. Ericsson strengthened its long-standing business relationship with Omantel, a leading telecommunications company in Oman. Ericsson was selected by Omantel to support its ongoing 5G Radio Access Network (RAN) deployment.

Also, Ericsson was picked by SoftBank to deliver cloud-native 5G Core for the latter’s 5G Standalone Network. Bharti Airtel, India’s largest integrated telco, renewed its agreement with it to provide pan-India managed network operations through Ericsson Operations Engine. Ericsson was chosen by XL Axiata to deploy 5G-ready cloud core technology solutions in East Indonesia. These are likely to get reflected in the upcoming results.

Ericsson and Deutsche Telekom, the largest telecommunications service provider in Europe (by revenues), strengthened their partnership with a new deal to deploy the service provider’s 5G RAN across Germany. Verizon became the first U.S. communications service provider to receive a 5G base station manufactured at Ericsson’s new 5G production factory in Texas. Ericsson continues to strengthen its U.S. capabilities in 5G research, design, manufacturing and service delivery.

The company achieved a significant 5G milestone by securing its 100th commercial 5G agreement with operators. The figure includes 58 publicly-announced contracts and 56 live 5G networks in 29 countries. This followed Ericsson’s announcement of a 5G deal with Telekom Slovenije, a leading Slovenian communications service provider. Ericsson’s contracts span RAN and Core network deployments, driven by products and solutions from the Ericsson Radio System and Cloud Core network portfolios.

Such developments are likely to have had a positive impact on the company’s top line. For the September-ended quarter, the Zacks Consensus Estimate for revenues is pegged at $6,520 million, indicating growth of 9.4% from the year-ago quarter’s reported figure. Adjusted earnings per share are pegged at 16 cents, which suggests an improvement of 184.2% from the prior-year quarter’s recorded figure.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for Ericsson this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Ericsson’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +22.45% as the former is pegged at 20 cents and the latter at 16 cents.

Ericsson Price and EPS Surprise

Ericsson Price and EPS Surprise
Ericsson Price and EPS Surprise

Ericsson price-eps-surprise | Ericsson Quote

Zacks Rank: Ericsson has a Zacks Rank #4 (Sell), at present.

Stocks to Consider

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

Herc Holdings Inc. HRI is slated to release third-quarter 2020 results on Oct 22. It has an Earnings ESP of +22.89% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Schnitzer Steel Industries, Inc. SCHN is scheduled to release fourth-quarter fiscal 2020 results on Oct 22. The company has an Earnings ESP of +7.69% and a Zacks Rank #1.

PulteGroup, Inc. PHM has an Earnings ESP of +5.99% and a Zacks Rank of 1. The company is set to report third-quarter 2020 results on Oct 22.

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