Will Lower Revenue Growth Hurt Ceragon's (CRNT) Q4 Earnings?

Ceragon Networks Ltd. (NASDAQ:CRNT) is scheduled to report fourth-quarter 2018 results before the opening bell on Feb 20. In the last reported quarter, the company delivered a positive earnings surprise of 75%. Notably, Ceragon surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, the average beat being 39.6%.

For the fourth quarter, the company is likely to report lower consolidated revenues on a year-over-year basis as competitive pressures stifle the growth dynamics. Whether this could hurt its bottom line remains to be seen.

Factors to Consider

Ceragon is benefitting from the steady migration of networks from 4G to 5G technology as operators go for wireless backhaul solutions that combine the benefits of flexibility, quick roll out, and conserving resources such as spectrum and power. With a wide array of solutions, the company enables quick service expansion for mobile operators across the globe. This, in turn, has translated into a healthy pickup in demand from North America, Latin America and Africa.

In addition, Ceragon continues to focus on improving its market share in various vertical markets including public safety in the United States, as well as oil and gas, utilities, maritime and digital divide projects around the world. This is likely to contribute to top-line growth in the quarter. The company further expects to achieve an uptick in margins due to more favorable revenue mix with continued focus on tight control of operating expenses while maintaining an aggressive investment posture.

However, Ceragon is grappling with increased downward price pressure as it expands customer base to include more Tier 1 customers in developed markets and extend its geographic footprint in certain emerging markets and other less profitable countries. This has mostly resulted in declining average sales prices for its products. Moreover, Ceragon’s products compete with other high-speed communications solutions, including fiber optic lines and other wireless technologies. Some of these technologies utilize existing installed infrastructure and have achieved significantly greater market acceptance and penetration than high-capacity point-to-point wireless technologies utilized by Ceragon. In addition, point-to-point wireless technologies have suboptimal performance in extreme weather conditions and have limitations in connection between antennas.

Owing to these short-term headwinds, Ceragon is likely to record lower revenues in the fourth quarter. The Zacks Consensus Estimate for total revenues for the quarter is pegged at $85 million. In the year-earlier quarter, the company generated revenues of $87 million.

Earnings Whispers

Our proven model does not show that Ceragon is likely to beat earnings this quarter as it does not possess the key components. 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. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are is pegged at 5 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ceragon has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us reasonably confident of an earnings beat.

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

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. (NYSE:LYV) is slated to release quarterly numbers on Feb 28. It has an Earnings ESP of +3.77% and a Zacks Rank #1.

CommScope Holding Company, Inc. (NASDAQ:COMM) is scheduled to release results on Feb 21. The company has an Earnings ESP of +6.05% and has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ciena Corporation (NYSE:CIEN) is slated to release quarterly numbers on Mar 5. It has an Earnings ESP of +1.70% and a Zacks Rank #3.

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