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Can Top-Line Growth Drive CenturyLink (CTL) Q4 Earnings?

Supriyo Bose

CenturyLink, Inc. CTL is scheduled to report fourth-quarter 2018 results after the closing bell on Feb 13. In the last reported quarter, the company delivered a positive earnings surprise of 11.1%.

The company is likely to report higher revenues in the to-be-reported quarter owing to healthy growth dynamics. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

CenturyLink is focused on bringing improved operational efficiencies through a number of methods including network simplification and rationalization. This should help the company improve its end-to-end provisioning time and drive standardization. Moreover, its strong network capabilities, integrated hosting and network solutions are likely to promote growth in the cloud business. Notably, the company views its managed and cloud services as a key differentiator from other players in the market, which should boost its top line.

Furthermore, CenturyLink’s focus on transforming its business operations through product evolution and digitizing of customer interaction bodes well. The company has introduced Dynamic Connections as part of its Cloud Connect portfolio and announced the global expansion of its SD-WAN solutions while expanding its platform to cloud service and software-as-a-service providers. CenturyLink is working with customers to enable their 5G roadmaps while extending its fiber footprint.

Furthermore, the company introduced a suite of fiber-based broadcast services that enables safe, secure and seamless connectivity to cloud-based media services and workflows. Dubbed the Vyvx Cloud Connect, the new network service facilitates broadcasters as well as studio and stadium venues across the country to easily upload live and linear video into and out of the cloud.

Top-Line Expansion

CenturyLink remains confident about its financial performance for the fourth quarter. The company’s global fiber footprint and an extraordinary IP backbone delivers connections to the world's most important cloud, data center and software-as-a-service providers. Moreover, the expansion of new services like SD-WAN and embedded security enables it to create competitive advantages in enterprise networking with the scale and scope few others can match. Also, the company is pleased with the integration of Level 3. It is focused on driving profitable growth, capturing synergies and taking advantage of the cost and customer experience transformation opportunities.

The Zacks Consensus Estimate for revenues from the Business segment, which accounts for the lion’s share of total revenues, is currently pegged at $4,278 million. For the fourth quarter, revenues from Consumer are expected to be $1,338 million while revenues from Regulatory are estimated to be $180 million. Consequently, the consensus estimate for total revenues stands at $5,797 million, up from $5,323 million reported in the year-earlier quarter. Adjusted earnings per share are pegged at 36 cents, up from 18 cents reported a year ago.

Earnings Whispers

Our proven model does not conclusively show that CenturyLink is likely to beat earnings this quarter as it does not possess the 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: Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is +19.92%. This is because the Most Accurate Estimate is 43 cents and Zacks Consensus Estimate is pegged at 36 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

CenturyLink, Inc. Price and EPS Surprise

 

CenturyLink, Inc. Price and EPS Surprise | CenturyLink, Inc. Quote

Zacks Rank: CenturyLink has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) 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:

GTT Communications, Inc. GTT is slated to release quarterly numbers on Feb 28. It has an Earnings ESP of +173.53% and a Zacks Rank #2.

CommScope Holding Company, Inc. COMM is scheduled to release results on Feb 21. The company has an Earnings ESP of +6.05% and has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Arista Networks, Inc. ANET is +2.72% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 14.

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