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A month has gone by since the last earnings report for CenturyLink (CTL). Shares have added about 4.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is CenturyLink due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;"><u><strong>CenturyLink Beats Q2 Earnings Estimates, Ups Guidance</strong></u><br /><br />CenturyLink reported mixed second-quarter 2018 results wherein the top line missed the Zacks Consensus Estimate but the bottom line surpassed the same.<br /><br /><strong>Net Income</strong><br /><br />Net income for the reported quarter was $292 million or 27 cents per share compared with $17 million or 3 cents per share in the year-ago quarter. The year-over-year increase was primarily attributable to higher revenues and income tax benefit.<br /><br />Adjusted net income came in at $282 million or 26 cents per share compared with $131 million or 24 cents per share in the year-ago quarter. Adjusted earnings for the reported quarter beat the Zacks Consensus Estimate by 3 cents.<br /><br /><br /><br /><strong>Revenues</strong><br /><br />Quarterly operating revenues increased 44.3% year over year to $5,902 million driven by incremental revenues from Level 3. The top line, however, lagged the Zacks Consensus Estimate of $5,930 million.<br /><br /><strong>Operating Metrics</strong><br /><br />Total operating expenses increased 38% year over year to $5,135 million. Operating income improved 109% to $767 million primarily due to higher revenues. Operating margin was 13% compared with 9% in the year-ago quarter.<br /><br />Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose to $2,111 million from $2,007 million in the year-ago quarter. Adjusted EBITDA margin was 35.8% compared with 33.2% in the prior-year quarter. <br /><br />As of Jan 1, 2018, the company adopted the new revenue recognition standard, ASC 606. Overall, the adoption of this new standard affected total revenues by approximately $11 million in the reported quarter, reflecting $27 million negative impact on Consumer revenues and $16 million positive impact on Business revenues.<br /><br /><strong>Other Quarter Details</strong><br /><br />Business revenues were $4,365 million compared with Pro Forma revenues of $4,419 million in the year-ago quarter. The sales figure was affected by slower sales and the adoption of the new revenue recognition standard.<br /><br />Consumer revenues were $1,352 million compared with Pro Forma revenues of $1,436 million in the second quarter of 2017. The company incurred a net loss of about 80,000 broadband subscribers in the reported quarter. <br /><br />By Business unit, Medium & Small business revenues were $884 million, while Enterprise revenues were $1,295 million. Consumer, Wholesale & Indirect, and International & Global Accounts generated $1,352 million, $1,283 million and $903 million, respectively.<br /><br />By Service type, revenues from IP & Data services were $1,833 million, while that from Transport & Infrastructure, and Voice & Collaboration totaled $2,064 million and $1,658 million, respectively.<br /><br /><strong>Cash Flow & Liquidity</strong><br /><br />For the first six months of 2018, CenturyLink generated $3,249 million of cash from operations compared with $1,742 million in the prior-year period. As of Jun 30, 2018, the company had $700 million of cash and cash equivalents with long-term debt of $36,878 million.<br /><br /><strong>2018 View</strong><br /><br />For full-year 2018, CenturyLink has raised its adjusted EBITDA, free cash flow and free cash flow after dividends guidance on favorable growth dynamics. Adjusted EBITDA is anticipated in the range of $9.00-$9.15 billion, up from the previous view of $8.75-$8.95 billion. Free cash flow is expected in the range of $3.60-$3.80 billion, up from $3.15-$3.35 billion expected earlier. Free cash flow after dividends is projected between $1.30 billion and $1.50 billion, up from the previous range of 0.85-$1.05 billion. Effective income tax rate is expected to be around 18% for 2018.</p>
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 15.03% due to these changes.
Currently, CenturyLink has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CenturyLink has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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