CenturyLink (CTL) Likely to Beat Q3 Earnings Estimates

We expect telecommunications service provider, CenturyLink, Inc. CTL, to beat expectations when it reports third-quarter 2015 financial numbers on Nov 4, after market close.

Last quarter, CenturyLink recorded a 9.84% negative earnings surprise. However, the company’s earnings have outpaced the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 0.14%. Let’s see how things are shaping up for this announcement.

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 for CenturyLink is +1.45% because the Most Accurate Estimate is 70 cents while the Zacks Consensus Estimate is pegged at 69 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 #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) 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 #2 and +1.45% ESP makes us reasonably confident of an earnings beat.

CenturyLink was recently granted $3 billion of FCC Connect America Fund II (CAFII) subsidy, for a period of six years, to provide rural broadband service to 1.2 million households and businesses across 33 states. We believe deployment of high-speed Internet services in the underserved rural areas, by making optimal use of government subsidy, may help the company strengthen its financial position.

Notably, opportunities in the small and mid-sized businesses (SMB) segment remain a major positive for CenturyLink. The company’s broadband expansion objective should also help it to meet the growing demand. In addition, a realigned business structure is likely to reap beneficial results over the long term.

Meanwhile, continuous extension of data centers coupled with strength in products such as high-speed Internet, high bandwidth data services, Prism TV and managed hosting and cloud services are expected to impact the to-be-reported quarter’s results favorably.

On the flip side, continued pressure on wholesale revenues along with higher employee and benefit costs, compelled the company to lower its outlook for 2015. Also, CenturyLink is planning to retrench 1,000 employees. Moreover, deteriorating legacy voice and access revenues owing to wireless substitution, intense competition, federal regulations and labor issues are some of the factors that may weigh upon the quarter’s performance.

CenturyLink is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Facebook, Inc. FB has an earnings ESP of +5.71% and a Zacks Rank #1.

Windstream Holdings, Inc. WIN has an earnings ESP of +7.5% and a Zacks Rank #2.

Cogent Communications Holdings, Inc. CCOI has an earnings ESP of +16.67% and a Zacks Rank #3.

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