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Will Top-Line Woes Affect CenturyLink's (CTL) Q2 Earnings?

Zacks Equity Research

CenturyLink, Inc. CTL is scheduled to report second-quarter 2019 results after the closing bell on Aug 7. In the last reported quarter, the company delivered a positive earnings surprise of 25.9%.

CenturyLink is likely to report lower revenues owing to challenging macroeconomic environment and higher investments to transform its legacy business model.

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

Factors to Consider

During the quarter, CenturyLink continued its investment spree to transform its business operations through product evolution and digitizing of customer interaction. The company expanded its Ethernet Services portfolio to provide improved connectivity for enterprise customers. In particular, CenturyLink added multipoint-to-multipoint capabilities to its Ethernet E-Services portfolio to help businesses simplify bandwidth requirements, while creating multinational Wide Area Networks to minimize costs.

Furthermore, CenturyLink made significant investments in South Florida to provide a new network gateway that will manage the flow of data traffic and Internet across the region. The network gateway is connected to three long-haul fiber routes and a nearby network access point, where different sections of the high-speed backbone network are connected. The gateway is also connected to nearby sub-sea landing stations for seamless access to sub-sea communications cables and a large colocation facility that serves Latin America.

During the quarter, the company entered into an agreement with Streamroot — a leading provider of video delivery technologies for media groups and enterprise customers — to address subscribers’ burgeoning demand for over-the-top (OTT) digital platforms. Per the deal, CenturyLink will integrate Streamroot’s peer-to-peer networking solutions with its content delivery network for superior user experience. The move is likely to give a solid OTT delivery solution to broadcasters while bringing in a new standard for large-scale video delivery to audiences.

All these initiatives are likely to be reflected in the upcoming results.

Top-Line Contraction

Despite significant thrust on infrastructure development to improve long-term revenue growth prospects, CenturyLink is likely to record lower revenues in the second quarter year over year owing to secular declining trends. The Zacks Consensus Estimate for revenues from the Business segment, which accounts for the lion’s share of total revenues, is currently pegged at $4,186 million, implying a decline from $5,902 million recorded in the year-earlier quarter. For the second quarter, revenues from Consumer are expected to be $1,398 million, marginally up from $1,352 million reported a year ago. The consensus estimate for total revenues stands at $5,625 million, indicating a decline from $6,040 million reported in the year-earlier quarter.

Earnings Whispers

Our proven model does not conclusively show that CenturyLink will beat earnings in the second 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 the Zacks Consensus Estimate, is -6.45% with the former pegged at 29 cents and the latter at 31 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. price-eps-surprise | CenturyLink, Inc. Quote

Zacks Rank: CenturyLink has a Zacks Rank #3. Although this increases the predictive power of our model, we need a positive ESP to make us reasonably confident of an earnings beat.

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:

Ciena Corporation CIEN is set to release quarterly numbers on Aug 29. It has an Earnings ESP of +5.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Momo Inc. MOMO is +1.35% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Aug 28.

The Earnings ESP for Avalara, Inc. AVLR is +21.05% and it carries a Zacks Rank of 3. The company is slated to report quarterly numbers on Aug 7.

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