Will Sprint's Earnings Affect Its Bidding War?

On Wednesday, Sprint Nextel (NYSE: S  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. 

Sprint was once dismissed as an also-ran in the telecom industry, but lately, it's become the subject of a bidding war between two potential suitors. Which one will Sprint take to the altar, and will this quarter's results have an impact on its merger plans? Let's take an early look at what's been happening with Sprint over the past quarter and what we're likely to see in its report.

Stats on Sprint

Analyst EPS Estimate

($0.32)

Year-Ago EPS

($0.29)

Revenue Estimate

$8.71 billion

Change From Year-Ago Revenue

(0.3%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Sprint finally start connecting with customers?
Prospective mergers aside, analysts have remained pessimistic recently about Sprint's earnings. They've widened their loss estimates for the just-ended quarter by $0.04 per share, with full-year 2013 consensus showing more than double that move. Yet the interest in the company has pushed its stock ahead by more than 25% since mid-January.

Until last week, it looked like Sprint would move forward with its deal with Japan's SoftBank, under which the Japanese bidder plans to give the U.S. carrier a massive infusion of capital in exchange for a 70% stake in Sprint. But DISH Network's (NASDAQ: DISH  ) offer last week to make a $25.5 billion bid for the entire company has thrown a wrench into the works, and investors are hoping for higher bids from potential buyers to sweeten the deal.

DISH's move is especially interesting in light of its having gotten into the middle of Sprint's ongoing attempts to buy out longtime partner Clearwire (UNKNOWN: CLWR.DL  ) , as well. Back in January, DISH made a rival bid for Clearwire as a way to get critical spectrum and LTE network infrastructure without having to build it from scratch. A bigger purchase of Sprint outright would give DISH the same benefits, albeit with a much larger financial commitment.

Unfortunately for Sprint, all the merger talk is a distraction from the challenges its business faces. Verizon and AT&T continue to dominate the industry, and despite attempts from federal regulators to give Sprint and other smaller carriers more of a chance at competing, the fact remains that the two leaders are profitable, while Sprint isn't seen getting back into black until 2015 at the earliest.

In Sprint's report, look beyond the merger distraction to closely examine exactly where Sprint is losing money. Only by addressing operational challenges can Sprint get back on track and become a viable third player in the U.S. wireless space, and if bad earnings lead its buyers to have second thoughts, it could hurt the stock badly.

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