Level 3 Communications, Inc. (LVLT) is slated to report its third-quarter 2014 results on Nov 5, before the opening bell. Last quarter, the company had delivered a positive earnings surprise of 12.12%. Let’s see how things are shaping up for this announcement.
Factors at Play
Level 3 Communications, which provides local, national and global communications services to enterprise, government and carrier customers, is expected to report strong revenues in the third quarter driven by impressive Core Network Services (CNS) sales in North America.
Nevertheless, the company faces the risk of adverse foreign currency movements that may impact its top line. Apart from the earnings report, focus will be on Level 3 Communications’ acquisition of tw telecom, completed last month.
In its press release, Level 3 Communications had stated that it will disclose earnings results for itself as well as for the erstwhile tw telecom on the third quarter conference call. Investors will look forward to the commentary on the erstwhile tw telecom in its third quarter conference call. Costs related to the acquisition are, however, anticipated to hurt the bottom line.
Earnings Whispers?
Our proven model does not conclusively show that Level 3 Communications is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here, as elaborated below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -6.45%. This is because the Most Accurate estimate of 29 cents stands below the Zacks Consensus Estimate of 31 cents.
Zacks Rank: Level 3 Communications’ Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Lumos Networks Corp. (LMOS), earnings ESP of +15.39% and a Zacks Rank #2 (Buy).
CenturyLink, Inc. (CTL), earnings ESP of +1.61% and a Zacks Rank #3.
Entravision Communications Corp. (EVC), earnings ESP of +22.22% and a Zacks Rank #3.
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