Level 3 Communications (LVLT) Q2 Earnings: What's Up?

Level 3 Communications Inc. (NYSE:T) , the leading U.S. fiber-optic network service provider, is slated to report second-quarter 2016 financial numbers, before the opening bell on Jul 27.

Last quarter, Level 3 Communications posted a negative earnings surprise of 24.44%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 3.77%. Let’s see how things are shaping up for this announcement.

Factors at Play

Level 3 Communications operates in a highly competitive enterprise communications market. Inspite of its vast presence in the fiber market of Latin America, Europe, Middle East and Asia, it has to compete with telecom behemoths like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) in North America and with Telefonica (MC:TEF), Orange, BT Group (LON:BT), America Movil in Europe and Latin America. Moreover, fluctuations in the global macro economy could have an adverse effect on the company’s business, results of operations and financial condition. Notably, the company faces the risk of adverse foreign currency movements that may impact its top line. Also, the company’s high customer concentrationis a major concern.

Nevertheless, the company has a strong presence in several fields of enterprise networking like data networks, content distribution, managed services, securities, voice cloud and cloud connection. The company stands to benefit from the ongoing trend of large enterprise customers shifting to IP and fiber-based network architecture. Additionally, the company is on the lookout for strategic merger and acquisitions or stock buyouts to maximize shareholders’ value.

Earnings Whispers

Our proven model does not conclusively show that Level 3 Communications is likely to beat the Zacks Consensus Estimate this quarter. This is because 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. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Level 3 Communications has an earnings ESP of -6.38%. This is because the Most Accurate estimate stands at 44 cents while the Zacks Consensus Estimate is pegged higher at 47cents.

Zacks Rank: Level 3 Communications has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Here’s a company that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter.

Charter Communications Inc. (NYSE:T) , with an earnings ESP of +404.76% and a Zacks Rank #2.

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