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Frontier Communications' (FTR) Q4 Earnings: What's in Store?

Zacks Equity Research

Frontier Communications Corporation FTR is scheduled to report fourth-quarter 2018 financial results after the closing bell on Feb 26. In the last reported quarter, the company delivered a positive earnings surprise of 65%. Notably, it surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 36.5%.

Soft demand trend in voice and video businesses is likely to affect the company’s quarterly revenues. Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

During the fourth quarter, Frontier Communications unveiled a new Gigabit service in its FiOS and Vantage Fiber markets to capitalize on the growth opportunities in regional emerging markets. The company is offering its fastest residential broadband service, increasing consumer broadband service to 200/200 megabits per second (Mbps) while adding higher speeds in Indiana, Oregon and Washington with 300/300 Mbps.

Frontier Communications is diligently working on a broad range of initiatives to improve customer experience, churn and operational efficiency. The company has introduced new products, including SD-WAN offering in its Commercial business and enhanced its existing products like expansion of the availability of Gigabit broadband service across its fiber footprint. Moreover, it is currently focusing on cost management to mostly offset the impact of revenue decline and expenses related to the launch of its new branding platform. Frontier Communications anticipates that its transformation program will begin to yield benefits in 2019. Further, it remains confident of achieving $500 million EBITDA benefit target from transformation program by year-end 2020.

The company is progressing well in its Consumer business, which is expected to result in an improved revenue trend in the fourth quarter.

The Zacks Consensus Estimate for revenues from the Customer segment, which accounts for the lion’s share of total revenues, is pegged at $1,999 million. It reported $2,027 million a year ago. This can be largely attributable to pressure in voice and video revenues. Revenues from Subsidy and other regulatory are estimated to decline to $95 million from $190 million due to fall in federal Universal Service Fund (USF) fees that the company bills, and decline in switched access. These were part of regulatory revenues under ASC 605, but currently under ASC 606, USF comes within Consumer and Commercial revenues, while switched access is part of Commercial revenues. Consequently, for the fourth quarter, the consensus estimate for total revenues stands at $2,093 million, down from $2,217 million reported in the year-earlier quarter. Adjusted loss per share is pegged at 4 cents. The company incurred a loss of 59 cents a year ago.

What Our Model Says

Our proven model does not conclusively show that Frontier Communications is likely to beat earnings this quarter as it does not possess one of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Frontier Communications’ Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at a loss of 4 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Frontier Communications Corporation Price and EPS Surprise

Frontier Communications Corporation Price and EPS Surprise | Frontier Communications Corporation Quote

Zacks Rank: Frontier Communications currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. LYV has an Earnings ESP of +3.77% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Theravance Biopharma, Inc. TBPH has an Earnings ESP of +8.04% and a Zacks Rank #2.  

MacroGenics, Inc. MGNX has an Earnings ESP of +5.44% and a Zacks Rank #2.

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