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Cincinnati Bell (CBB) Up 42.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Cincinnati Bell (CBB). Shares have added about 42.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cincinnati Bell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cincinnati Bell Q2 Loss Narrows Y/Y, Revenues Rise

Cincinnati Bell reported better-than-expected second-quarter 2019 financial results, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.

Net Loss

On a GAAP basis, net loss was $8.1 million or loss of 16 cents per share compared with net loss of $16.4 million or loss of 39 cents per share in the year-ago quarter. The narrower loss was due to top-line growth, partially offset by higher operating expenses.

Non-GAAP net loss came in at $6.6 million or loss of 13 cents per share compared with net loss of $7.9 million or loss of 19 cents per share in the prior-year quarter. The bottom line was narrower than the Zacks Consensus Estimate of a loss of 26 cents.

Revenues

Quarterly revenues grew 29.4% year over year to $384.2 million backed by impressive results from investments in fiber and IT services. Also, the top line, surpassed the consensus estimate of $376 million.

Segment Results

Revenues from Entertainment and Communications improved 44% year over year to $250.5 million, primarily driven by strong sales in fiber businesses. Cincinnati Bell’s merger with Hawaiian Telcom significantly expanded its high-quality metro fiber asset portfolio to meet the increased need for bandwidth and support the demand for IoT ecosystems.

IT Services and Hardware revenues increased 9.3% year over year to $140.2 million. Notably, the rise was driven by 13.7% growth in Consulting revenues and 16.3% increase from Communications revenues.

Other Details

Overall operating income was $24.9 million compared with $20.2 million in the year-ago quarter. Adjusted EBITDA increased $23 million to $103.1 million.

Cash Flow & Liquidity

During the second quarter, Cincinnati Bell generated $62 million of cash from operating activities compared with $31.4 million in the year-ago quarter. As of Jun 30, 2019, the regional telephone company’s net debt (non-GAAP) totaled $1,927.8 million.

2019 Outlook

Cincinnati Bell has reiterated guidance for full-year 2019, reflecting expected contribution from Hawaiian Telcom. Notably, the company continues to anticipate revenues between $1,515 million and $1,575 million, and adjusted EBITDA in the range of $400-$410 million.

Going Forward

Cincinnati Bell is focused on transforming itself from a legacy copper-based telecommunications company to a technology company with contemporary fiber assets servicing both consumer and business customers with flexible data, video, voice and IP solutions. With a well-designed marketing program, popular brand value and strong reputation of offering high-quality service, the company expects to increase its Entertainment and Communications revenues. Also, the expansion of the company's geographic footprint in IT services has brought enhanced scale and client diversification, supporting its transformation to a hybrid IT solutions provider.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 17.72% due to these changes.

VGM Scores

Currently, Cincinnati Bell has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cincinnati Bell has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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