Will Altice USA (ATUS) Disappoint Investors In Q4 Earnings?

Altice USA (NYSE:S) is scheduled to release fourth-quarter 2017 results on Feb 27, after market close. Based in Bethpage, NY, Altice USA is one of the largest broadband communications andvideo services providers in the United States.

The company has a negative earnings surprise history. Earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 385%

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

Factors Likely to Influence Q4 Earnings

Altice USA operates in a highly competitive, consumer and technology-driven market, which is likely to be affected by rapidly changing businesses and consumer choices. The company’s ability to increase the number of subscribers to its services is highly dependent on penetration rates.

Further, higher programming costs and other operating expenses are likely to affect margins going forward. Altice USA’s programming costs increased 3% year over year in third-quarter 2017, primarily due to an increase in contractual programming rates, partially offset by a decrease in video customers. In the reported quarter, Optimum’s programming costs increased 3.5% to $482 million and Suddenlink’s programming costs increased 1.4% to $147 million, both on a year-over-year basis. Programming cost per customer is expected to increase going forward.

Additionally, the company’s operations also remain susceptible to foreign currency exchange rate risks and interest rate risks.

Due to these headwinds, Altice USA has recorded a disappointing price performance. In the past six months, the stock has declined 39.9% compared with the industry’s loss of 3.6%.

Despite such headwinds, the company continues to deploy fiber network in various international markets and ink different content and programming-related deals. Altice USA’s efforts to improve customer services, sales and marketing efficiencies through digitalization are bearing fruit. Though the carriage deal settlement with The Walt Disney Company (NYSE:DIS) led to uninterrupted access to some of Disney’s premium channels, pay-TV prices for Optimum customers rose on the back of high-quality video services and faster Internet. Altice USA and Charter Communications (NASDAQ:CHTR) have reportedly reached an agreement to broadcast respective regional cable news networks. Its multi-year deal with Sprint (NYSE:S) will help Altice USA provide mobile voice and data services throughout the nation through Sprint’s network.

Earnings Whispers

Our proven model does not conclusively show that Altice USA 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: Altice USA has an Earnings ESP of -60.00%. This is because the Most Accurate estimate stands at a loss of 2 cents per share while the Zacks Consensus Estimate is pegged at a loss of 1 cent. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: Altice USA has a Zacks Rank #4 (Sell).

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

Stock to Consider

SBA Communications (NASDAQ:SBAC) from the broader Computer and Technology sector has the right combination of elements to post an earnings beat in fourth-quarter 2017, which is scheduled to be reported on Feb 26. The company has an Earnings ESP of +41.8% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s sales for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 5% and 6.4%, respectively.

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