Wireless service provider, United States Cellular Corporation (USM), is slated to release its third-quarter 2014 results on Oct 31, before the opening bell.
Last quarter, the company’s earnings missed the Zacks Consensus Estimate by a margin of 46.67%. Moreover, the company has delivered negative earnings surprises in all the prior four quarters, with an average miss of 98.66%. Let’s see how things are shaping up ahead of this announcement.
Factors to be Considered this Quarter
U.S. Cellular has taken a number of strategic steps to accelerate growth which includes introduction of a new billing system, continuous rollout of LTE, enhancement of LTE handsets and the completion of various spectrum transactions. Further, the launch of equipment financing is likely to offset subsidy headwinds to a large extent. In addition, shared data plans will lower churn rates and increase customer accretion for the company. Monetization of non-strategic assets will further boost the company’s balance sheet.
Meanwhile, U.S. Cellular’s high-margin roaming revenues remain under pressure due to lower voice usage and roaming rates. Stiff pricing competition from big players in the market and heavy subsidies on smartphones could restrict the company’s growth, going forward. High costs associated with network integration and construction of new cell sites, increasing capacity in existing cell sites, upgrading wireless technology and spectrum licensing are also expected to put considerable pressure on the company’s margins.
Earnings Whispers?
Our proven model does not conclusively show that U.S. Cellular is likely to beat the Zacks Consensus Estimate this quarter. This 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, that is not the case here as elaborated below.
Zacks ESP: U.S. Cellular’s earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at a loss of 27 cents.
Zacks Rank: U.S. Cellular carries a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
Note that Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Ruckus Wireless, Inc. (RKUS), with earnings ESP of +60.00% and a Zacks Rank #3 (Hold).
DragonWave Inc. (DRWI), with earnings ESP of +16.67% and a Zacks Rank #3.
CenturyLink, Inc. (CTL), with earnings ESP of +1.61% and a Zacks Rank #3.
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