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Is a Beat in Store for CenturyLink (CTL) in Q4 Earnings?

Zacks

CenturyLink CTL is slated to report fourth-quarter 2017 results on Feb 14, after the market closes. Based in Louisiana, the company is a leading regional wireline service provider in the United States.

The Zacks Consensus Estimate for revenues is pegged at $5.69 billion, reflecting year-over-year improvement of 32.6%. The Zacks Consensus Estimate for earnings is pegged at 22 cents per share, indicating a year-over-year decline of 59.3%.

Meanwhile, the company has a negative earnings surprise history. Earnings lagged the Zacks Consensus Estimate in all of the previous four quarters, with an average miss of 4.56%

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


Why a Likely Positive Surprise?

Our proven model shows that CenturyLink is likely to beat estimates because it has the right combination of the two key elements.

Zacks ESP: CenturyLink has an Earnings ESP of +14.87%. This is because the Most Accurate estimate is 26 cents while the Zacks Consensus Estimate is pegged at 22 cents. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CenturyLink has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of CenturyLink’s favorable Zacks Rank and positive ESP indicates a likely positive surprise.

CenturyLink, Inc. Price and EPS Surprise

CenturyLink, Inc. Price and EPS Surprise | CenturyLink, Inc. Quote

What is Driving the Better-than-Expected Results?

CenturyLink remains focused on establishing itself as a global leader in cloud infrastructure and hosted IT solutions arena for enterprise customers. It continues to invest in fiber-to-the-tower (FTTT) expansion and has expanded its fiber-based backhaul services. Acquisition of Level 3 Communications will increase CenturyLink's network by 200,000 route miles of fiber. The new company will be a formidable force in the fiber-based metro-Ethernet and Internet market.

Moreover, thecompany is focused on bringing improved operating efficiencies through a number of methods including network simplification and rationalization. Further, the growing momentum of CenturyLink’s Prism IPTV service has prompted it to unveil a beta version of over-the-top (OTT) TV services. By foraying into the OTT space, the company has joined the likes of DISH Network’s DISH Sling TV and AT&T’s T DirecTV Now. We also appreciate CenturyLink’s quarterly dividend payout of 54 cents per share, paid on Dec 11, 2017, to shareholders of record as of Nov 27, 2017.

On the flip side, CenturyLink continues to suffer from declining access lines and broadband subscriber losses. This is primarily due to the substitution of traditional wireline telephone services by wireless and other competitive offerings and lower long distance minutes of use.

The Zacks Consensus Estimate for total access lines in fourth-quarter 2017 is pegged at 10,361 million. The estimate indicates a decline from 10,506 million and 11,090 million reported in third-quarter 2017 and fourth-quarter 2016, respectively.

High-speed broadband customer count estimate for the quarter stands at 5.699 million. The figure lags 5.767 million and 5.945 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Additionally, high debt levels and decreasing cash flows are likely to affect the company's margins. Technological changes compel large investments, which can dilute cash flow.

Revenues

We expect CenturyLink to see an improvement in revenues in the to-be-reported quarter.

The Zacks Consensus Estimate for total revenues in fourth-quarter 2017 is pegged at $5.69 billion, showing a year-over-year increase of 32.6%. The estimate also shows an improvement from $4.03 billion reported in third-quarter 2017.

Strategic revenues are estimated to be $2,225 million, above $1,892 million and $2,016 million in third-quarter 2017 and fourth-quarter 2016, respectively.

The consensus estimate for Data Integration revenues of $139 million is higher than $134 million and $131 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Legacy revenue estimate of $1,683 million, however, is lower than $1,705 million and $1,846 million in third-quarter 2017 and fourth-quarter 2016, respectively.

However, segmental revenue estimates paint a dismal picture for the to-be reported quarter.

Business segment revenue estimates of $2,155 million lag $2,171 million and $2,545 million reported in third-quarter 2017 and fourth-quarter 2016, respectively.

Consumer segment revenue estimates of $1,364 million are lower than $1,387 million and $1,448 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Price Performance

CenturyLink’s stock price performance has been impressive. In the past three months, the stock has rallied 16.4% compared with the industry’s gain of 6.1%.

When compared with the market at large, the stock has outperformed the S&P 500 index’s rise of 1.6% in the same time frame.

Key Pick

Windstream WIN, from the broader Computer and Technology sector has the right combination of elements to post an earnings beat in fourth-quarter 2017, when it reports on Feb 22. The company has an Earnings ESP of +16.79% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s sales for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 13.7% and 6.9%, respectively.

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