On May 28, 2015, we issued an updated research report on Cincinnati Bell Inc. CBB.
The company reported strong financial results in the first quarter of 2015 with both the top and the bottom line surpassing the Zacks Consensus Estimate.
Going forward, Cincinnati Bell is poised to deliver stable financial results in the coming quarters, owing to its increased investments in strategic products, high-speed Internet offerings and higher managed service demand. Notably, the company’s Entertainment and Communications segment serves as the prime growth driver, buoyed by strength in the Fioptics business from continuous fiber deployment.
We believe amplified investments in strategic products specifically are expected to open up ample opportunities for enterprise customers, thus enhancing revenues and profitability. Strategic revenues increased 22% compared to the prior year, and now accounts for more than 50% of the company’s total recurring revenues.
Continuous demand for higher speed should further boost strategic revenues from business customers. Bolstered by these positive factors, the company is confident of achieving its revenue and adjusted EBITDA projection of approximately $1.1 billion and $297 million (plus or minus 2%), respectively, for 2015, excluding the wireless segment.
In April 2015, Cincinnati Bell completed the sale of 14 million CyrusOne partnership units for cash proceeds totaling $426 million. The company believes that the completion of this transaction has not only limited its exposure and risk associated with owning a large equity investment, but has also significantly increased the company’s operational flexibility and expanded opportunities to efficiently manage its capital structure.
Of late, Cincinnati Bell has witnessed upward estimate revisions which lend optimism on the stock’s prospects. The Zacks Consensus Estimate for 2015 bettered to a loss of 10 cents per share from a loss of 13 cents over the last 60 days. Similarly, for 2016, the estimates have risen from breakeven to earnings of 8 cents per share over the same time frame.
However, erosion in local access lines owing to fierce competition poses a major roadblock in the company’s growth path. Also, significant capital expenditures and legal expenses might hurt the company’s profitability.
Stocks that Warrant a Look
Cincinnati Bell currently sports a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in this sector are Juniper Networks, Inc. JNPR, Zhone Technologies Inc. ZHNE and Mobile Telesystems OJSC MBT. All the three stocks carry the same rank as Cincinnati Bell.
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