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What's in Store for HC2 Holdings (HCHC) in Q4 Earnings?

Zacks Equity Research

HC2 Holdings, Inc. HCHC is slated to report fourth-quarter 2018 results on Mar 12, after the market closes.

In the trailing four reported quarters, HC2 Holdings’ earnings surpassed estimates twice as well as missed the same on two occasions, the average negative surprise being 2.25%. Notably, in the last reported quarter, the company delivered earnings of 5 cents, beating the Zacks Consensus Estimate of a loss of 42 cents by 111.90%.

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

Factors at Play

HC2 Holdings continues to benefit from its well-diversified business portfolio in terms of geographies, services and markets. Also, the company’s robust execution and streamlined business have enabled it to drive solid improvements in backlog, net income and earnings per share. Going ahead, we believe, the company’s strategic restructuring activities and solid backlog levels will continue driving profitable growth.

The company believes that prospects in its end markets are bright. It expects the strong traction from its Construction segment to continue on the back of ramping up its several large-scale commercial projects. Notably, the buyout of GrayWolf will help the company offset some of the cyclicality associated with the commercial construction market. Additionally, strength in the Energy segment, supported by an increase in existing station utilization on account of higher renewable natural gas flow is expected to boost the segment’s performance in the to-be-reported quarter.

HC2 Holdings hopes that its cost-reduction efforts and greater operational efficacy will consistently cushion its profitability in the quarters ahead. In addition, new investments made in potential markets are likely to fuel long-term growth.

However, rising costs have been a major concern for the company. In the third quarter of 2018, the company's cost of sales flared up 24.1% year over year. Moreover, its quarterly selling and administrative expenses rose 12.1% from the year-ago figure. We believe, if unchecked, higher costs and operating expenses will be detrimental to HC2 Holdings’ margins and profitability.

Earnings Whispers

Our proven model does not conclusively show that HC2 Holdings is likely to beat on earnings this season as 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. But that is not the case here as given below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: HC2 Holdings has an Earnings ESP of 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at a loss of 16 cents each.

HC2 Holdings, Inc. Price and EPS Surprise

HC2 Holdings, Inc. Price and EPS Surprise | HC2 Holdings, Inc. Quote

Zacks Rank: HC2 Holdings carries a Zacks Rank #3, which increases the predictive power of ESP. However, its 0.00% ESP makes surprise prediction difficult for the stock this reporting cycle.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space you may want to consider as our model shows that these have the right combination of elements to beat estimates this to-be-reported quarter:

Chart Industries, Inc. GTLS has an Earnings ESP of +6.12% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kennametal Inc. KMT has an Earnings ESP of +1.25% and is a Zacks #3 Ranked player.

Eaton Corporation, plc ETN has an Earnings ESP of +0.81% and is a #3 Ranked player.

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