Cincinnati Bell vs. TELUS: Which is Better Post Q1 Earnings?
As the curtains roll down on first-quarter 2018 reporting cycle, various analysis and comparisons are being done by industry peers to gauge the underlying metrics and relative performance. Let us perform a similar comparative analysis between two stocks in the Zacks Diversified Communication Services industry — Cincinnati Bell Inc. CBB and TELUS Corporation TU — to pick the better investment option.
Earnings Scoresheet
Cincinnati Bell reported disappointing first-quarter results, wherein both the top line and the bottom line missed the Zacks Consensus Estimate. On a GAAP basis, quarterly net loss came in at $10.9 million or 26 cents per share against net profit of $58 million or $1.37 per share in the year-ago quarter. The significant decline in year-over-year earnings despite top-line growth was primarily due to higher operating expenses. Further, quarterly adjusted (excluding special items) loss per share was 19 cents, wider than the Zacks Consensus Estimate of loss of 15 cents. Quarterly total revenues of $295.7 million were up 18% year over year driven by solid demand of fiber-based products and inorganic growth. However, the figure lagged the Zacks Consensus Estimate of $299 million.
TELUS reported healthy results, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate. Net income for the quarter came in at CAD 410 million ($324.3 million), down 1% year over year. Adjusted earnings per share improved 2.8% to CAD 0.73 (60 cents), primarily driven by solid growth in revenues in both operating segments. The bottom line surpassed the Zacks Consensus Estimate of 59 cents. Quarterly consolidated revenues increased 6% year over year to CAD 3,377 million ($2,672 million), beating the Zacks Consensus Estimate of $2,624 million. The year-over-year increase reflected strong customer growth including 76,000 new postpaid wireless, Internet and TV customer additions.
Based on the recent-quarter earnings, TELUS has a clear edge over Cincinnati Bell due to a better earnings and revenue surprise percentage.
Price Performance
In the past year, TELUS has clearly outperformed Cincinnati Bell with an average return of 3.3% against a loss of 25.3% for the latter while the industry declined 15.2%.
Guidance
Cincinnati Bell has reaffirmed its earlier guidance for 2018 and continues to expect revenues to be between $1,200 million and $1,275 million, and adjusted EBITDA in the range of $320-$330 million.
TELUS updated its consolidated financial targets for 2018 to reflect the adoption of IFRS 15. The company projects an increase in revenues to the tune of 4-6% on CAD 13.4 billion. Adjusted EBITDA is expected to increase 3-6% on CAD 5 billion. IFRS earnings per share are expected to increase up to 6% on CAD 2.63. Capital expenditures for 2018 are expected to be approximately CAD 2.85 billion.
Estimate Revisions
Post earnings release, Cincinnati Bell’s current-quarter estimates improved from loss of 8 cents to loss of 7 cents per share while that for the current fiscal improved from loss of 40 cents to loss of 29 cents.
TELUS’ current-quarter estimates decreased to 53 cents from 55 cents post earnings release while current-year estimates declined to $2.14 per share from $2.15. Backed by positive estimate revisions, investor sentiments appear to be more bullish on Cincinnati Bell than TELUS. However, since Cincinnati Bell’s estimates are still in the red, the equilibrium tilts in favor of TELUS.
Zacks Rank
Both Cincinnati Bell and TELUS currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
To Sum Up
Based on the current scenario, TELUS seems to have trumped Cincinnati Bell on most fronts and stands out as a better investment option.
A couple of top-ranked stocks in the industry are Motorola Solutions, Inc. MSI and Ubiquiti Networks, Inc. UBNT, both carrying a Zacks Rank #2 (Buy).
Motorola has a long-term earnings growth expectation of 8%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 12.1%.
Ubiquiti Networks has a long-term earnings growth expectation of 18.6%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 8.9%.
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