Shaw Communications (SJR) Q4 Earnings: What's In Store?

Shaw Communications Inc (NYSE:SJR) is scheduled to release fourth-quarter fiscal 2017 (ending Aug 31, 2017) results, before the opening bell on Oct 26.

In the last two quarters, the company’s bottom line met with the Zacks Consensus Estimate. However, the company’s earnings lagged the Zacks Consensus Estimate in the remaining two of the previous four quarters, with an average miss of 11.96%.

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

Factors at Play

Shaw Communications operates in a highly competitive Canadian wireless market with incumbents like Rogers Communications Inc (NYSE:RCI) , TELUS Corp (NYSE:TU) and BCE Inc (TO:BCE) . Stiff competition has resulted in losses in video, Internet and landline phone businesses.

Rolling out of new brands, advertising promotions to lure more subscribers and technological advancements is likely to escalate expenses going ahead. These combined costs will adversely impact margins moving ahead.

Moreover, the company’s cash and liquidity position seem to be a major concern for the company. At the end of third-quarter fiscal 2017, Shaw Communications had cash and total outstanding debt of $235.73 million and $7,677.9 compared with $545.54 million and $7,186.25 million, respectively, at the end of August 2016. In the reported quarter, the company generated $173.76 million cash from continued operations compared with $202.05 million from the prior-year quarter. Free cash flow totaled $177.80 million versus $245.15 million in the year-ago quarter, reflecting a decrease of 27.5%. Accumulating debt and decreasing cash flows pose severe trouble for the company's long-term growth prospects.

On the back of such headwinds, the company’s shares have declined 1.9% compared with the industry’s fall of 4.1%, over the past three months.

When compared with the market at large, the stock’s performance fails to impress as compared with the S&P 500 index's rally of 3.6%.

On the flip side, we are bullish about Shaw Communications’ recent strategic business initiatives, which include the sale of its data center operations, ViaWest, to Peak 10 Holding Corp and the utilization of the net proceeds from ViaWest sale for the purchase of wireless spectrums from Quebecor Media. The company’s rating outlook upgrade by Moody’s Investor Services was a major positive. The company has positioned itself as a pure-play Canadian telecom company with the divesture of its unit, Shaw Media to Corus Entertainment. The company’s venture into the Canadian wireless market with the acquisition of a 100% interest in Mid-Bowline Group Corp (the parent company of WIND Mobile Corp) should pay off.

It is to be seen whether the company can maintain last quarter's massive user gain in the quarter to be reported. In the third quarter of 2017, Shaw Communications witnessed huge growth in cable-TV subscribers for the first time since 2010, marking an overall gain of 58,491 subscribers in its Consumer and Wireless divisions.

Earnings Whispers

Our proven model does not conclusively show that Shaw 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: Shaw Communications has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 23 cents. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: Shaw Communications has a Zacks Rank #5 (Strong Sell).

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

Key Pick

Comcast Corp (NASDAQ:CMCSA) from the broader Consumer Discretionary sector has the right combination of elements to post an earnings beat when it reports third-quarter fiscal 2017 results on Oct 26. Comcast has an Earnings ESP of +3.16% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comcast’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 7.77%.

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