CenturyLink (CTL): A Beat In Store This Earnings Season?

CenturyLink Inc. (NYSE:CTL) , a leading regional wireline service provider in the U.S., is scheduled to report third-quarter 2016 numbers on Nov 2, after market close.

Last quarter, the company posted a positive earnings surprise of 6.78%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 8.93%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that CenturyLink is likely to beat estimates because it has the right combination of two key elements.

Zacks ESP: CenturyLink has an Earnings ESP of +1.82%. This is because the Most Accurate estimate stands at 56 cents while the Zacks Consensus Estimate is pegged lower at 55 cents. This is a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: CenturyLink has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of CenturyLink’s Zacks Rank #3 and +1.82% ESP makes us confident of an earnings beat at the company.You can see the complete list of today’s Zacks #1 Rank stocks here.

What is Driving the Better-than-Expected Earnings?

CenturyLink’s Prism TV services have brought in substantial revenues. This has prompted the company to plan the 17 Channel over the top (OTT) service launch in the beginning of 2017 which should boost its video segment business. Meanwhile, the OTT service launch will help CenturyLink reach out to more customers outside its Prism TV footprint. The company has already completed negotiations with content providers and is also forging ahead with its marketing and operational plans.

CenturyLink’s investment in fiber-to-the-tower (FTTT) has expanded its fiber-based backhaul services. The company is also focused on establishing itself as a global leader in cloud infrastructure and hosted IT solutions arena designed for enterprise customers. CenturyLink is focused on bringing improved operating efficiencies through a number of methods including network simplification and rationalization. Recently, the company completed the rollout of the largest G.fast standard in its copper DSL lines in Platteville, WI. The telecom operator has connected 44 apartments using Calix Inc.’s (NYSE:CALX) AXOS G.fast solution. Notably, G.fast works well in densely populated areas providing speeds of up to 1 Gbps.

However, the company is facing mounting competitive pressure which led to the decision of cutting 8% of its labor force, concerning almost 3,000 to 3,500 jobs. Moreover, the loss of high-speed broadband subscribers, declining low-bandwidth data service revenues, intensifying competition, federal regulations and the constant need to upgrade technology remain potent headwinds.

Other Stocks to Consider

CenturyLink is not the only company looking up this earnings season. Here are some companies that also have the right combination of elements to post an earnings beat this quarter.

Apple Inc. (NASDAQ:AAPL) , with an earnings ESP of +1.21% and a Zacks Rank #2.The company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters.

Open Text Corporation (NASDAQ:OTEX) , with an earnings ESP of +6.12% and a Zacks Rank #2.The company’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters.

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