We expect telecommunication service provider, CenturyLink, Inc. (CTL), to beat earnings when the company reports its third quarter financial numbers on Nov 5, 2014, after market close.
Last quarter, the company had delivered a positive earnings surprise of 12.50%. Moreover, the company has outpaced the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 11.98%. 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 earnings because it has the perfect combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.61%. This is because the Most Accurate estimate stands at 63 cents, whereas the Zacks Consensus Estimate is pegged at 62 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: CenturyLink currently has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of CenturyLink’s Zacks Rank #3 and +1.61% ESP makes us reasonably confident of a positive earnings beat.
What's Driving the Better-than-Expected Earnings?
CenturyLink has announced the expansion of its global managed hosting services in China, fostering business for its Asia-Pacific region. The service is mainly dedicated toward multinational corporations in China. We believe the company’s expansion beyond the home turf should be vital in strengthening its global presence while also offering competitive advantage against strong peers.
Moreover, strength in products such as high-speed Internet, high bandwidth data services, managed hosting services and improvement in broadband and Prism TV sales remain key growth drivers at CenturyLink.
The company expects to achieve its growth target on synergies from long-standing ties with clients, bundled integrated services, launch of new and attractive services, consistent technology upgrades, infrastructure enhancement, better usage of networks and profitable collaborations. In addition, a realigned business structure to strengthen its grip over the enterprise market and commitment to wholesale, consumer and hosting customers is likely to reap beneficial results, going forward.
On the flip side, declining legacy voice and access revenues owing to wireless substitution, cash flow pressure, labor issues, federal regulations and the constant need to upgrade technology are some of the major risks facing the company.
Stocks to Consider
Here are some other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
BlackBerry Ltd. (BBRY) has an earnings ESP of +83.33% and carries a Zacks Rank #2 (Buy).
Lumos Networks Corp. (LMOS) has an earnings ESP of +15.39% and a Zacks Rank #2.
DragonWave Inc. (DRWI) has an earnings ESP of +16.67% and a Zacks Rank #3.
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