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What's in the Offing for Uniti Group's (UNIT) Q1 Earnings?

Zacks Equity Research

Uniti Group Inc. UNIT, formerly Communications Sales & Leasing, Inc., is scheduled to release first-quarter 2019 results on May 9, after the closing bell. The company’s results will likely reflect year-over-year rise in its revenues, while funds from operations (FFO) per share are expected to have declined.

In the last reported quarter, this real estate investment trust (REIT), involved in the acquisition and construction of communication infrastructure, missed the adjusted funds from operations (AFFO) estimates by 1.5%. The company generated total revenues of $271 million, indicating year-over-year growth of 10%.

Over the trailing four quarters, the company missed the consensus estimate on all four occasions. It delivered an average negative surprise of 1.58% during this period. The graph below depicts this surprise history:

Communications Sales & Leasing,Inc. Price and EPS Surprise

Communications Sales & Leasing,Inc. Price and EPS Surprise | Communications Sales & Leasing,Inc. Quote

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Amid growing demand for data volume and deployment of 5G network, wireless carriers are expanding and enhancing their networks. This is aimed to provide the coverage, capacity and speed needed to support mobile video, Internet of Things (IoT) and fixed wireless broadband. These industrial tailwinds are expected to benefit Uniti’s portfolio of strategic communication assets, including fiber, small cells and macro towers. In fact, quarterly revenues for the company are pegged at $270.25 million and indicate a year-over-year increase of 9.45%.

In a bid to recycle capital, in February, the company entered into a definitive agreement to sell its Latin American tower portfolio for cash consideration of nearly $100 million. Through this transaction, the company will dispose around 500 towers located across Mexico, Colombia and Nicaragua. Additionally, under its OpCo-PropCo partnership with MIP to acquire Bluebird Network, LLC, the company has agreed to sell its Uniti Fiber’s Midwest operations to MIP. These significant dispositions will likely result in lost revenues, which is expected to eventually affect the company’s first-quarter 2019 bottom-line growth.  

Moreover, the company has a concentrated tenant base and Windstream Holdings Inc is its primary customer with a master lease agreement. However, in first-quarter 2019, Windstream initiated its voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. Hence, if Windstream is unable to navigate through its reorganization process, it will significantly impact Uniti’s results and the company.

Hence, given the uncertainty of its master lease agreement with Windstream and liquidity concerns, the company slashed its quarterly dividends by 91.7% to five cents. This indicates the company will keep witnessing liquidity concerns in first-quarter 2019.

Also, Uniti’s activities during the quarter were inadequate to win analyst confidence. In fact, the Zacks Consensus Estimate for the first-quarter FFO per share remained unchanged at 54 cents, over the past month. In addition, the figure suggests a year-over-year decline of nearly 13%.

Earnings Whispers

Here is what our quantitative model predicts:

Uniti does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The company’s Earnings ESP is 0.00%.

Zacks Rank: It currently carries a Zacks Rank of 5 (Strong Sell), which decreases the predictive power of ESP.

It should be noted 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 negative estimate revisions.

Stocks That Warrant a Look

Several other players in the REIT space are lined up to report their financial results. Below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors Real Estate Trust IRET, scheduled to release earnings on May 8, has an Earnings ESP of +3.19% and currently carries a Zacks Rank of 3.

Park Hotels & Resorts Inc. PK, slated to report first-quarter results on May 8, has an Earnings ESP of +0.24% and holds a Zacks Rank of 2 (Buy), at present.

Global Medical REIT Inc. GMRE, set to report quarterly numbers on May 8, has an Earnings ESP of +1.65% and carries a Zacks Rank of 3, currently.

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Investors Real Estate Trust (IRET) : Free Stock Analysis Report
Park Hotels & Resorts Inc. (PK) : Free Stock Analysis Report
Communications Sales & Leasing,Inc. (UNIT) : Free Stock Analysis Report
Global Medical REIT Inc. (GMRE) : Free Stock Analysis Report
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