Bear of the Day: Cincinnati Bell (CBB)

Cincinnati Bell ( CBB ), a Zacks Rank #5 (Strong Sell), provides integrated communications solutions - including local and long distance voice, data, high-speed Internet and video - that keep residential and business customers in Greater Cincinnati and Dayton connected with each other and with the world. In addition, enterprise customers across the United States rely on CBTS, a wholly-owned subsidiary, for efficient, scalable office communications systems and end-to-end IT solutions.

Recent Earnings Data

In the company's most recent earnings report, they missed both the Zacks consensus earnings and revenue estimates. EPS fell from $0.01 in December of 2016 to -$0.18 in December of 2017. But revenues grew by +49.8% on a year over year basis. The drag on the results was twofold, first, Q4 IT hardware sales fell by -12.8% YoY (excluding the recent OnX acquisition) as one of its largest customers scaled back spending. Second, increased competition from Spectrum, who has been increasing its marketing in the Cincinnati area, and has offered very competitive pricing.

Looking forward, CBB is in the process of acquiring Hawaiian Telcom which is expected to keep capex elevated, and debt financing at levels that will negatively impact organic free cash flows over the near term. While the Hawaiian acquisition is expected to be beneficial in the long term, it will put pressure on the company over the next quarter or two.

Management's Take

According to Leigh Fox, President and CEO, " Our strong full year performance demonstrates the solid progress we have made in executing our growth strategy. This was an important year for Cincinnati Bell as we focused on building two distinct, complementary lines of business with expanded geographic reach, customer diversification and increased runway for growth. Central to this strategy has been the previously announced mergers with OnX and Hawaiian Telcom. These combinations bring meaningful scale to their respective businesses and position us to capitalize on the fast-growing demand for strategic fiber and cloud services offerings. We have successfully completed the acquisition of OnX and integration efforts continue to progress well. I am also pleased to report that we received overwhelming support from Hawaiian Telcom shareholders and the pending merger has made significant headway in gaining the necessary regulatory approvals ."

Price and Earnings Consensus Graph

These near term worries have caused the stock price to decline as you can see in the graph below.

Cincinnati Bell Inc Price and Consensus

Cincinnati Bell Inc Price and Consensus | Cincinnati Bell Inc Quote

Declining Earnings Estimates

Over the past 30 days, earnings estimates have been negatively revised for Q1 18, Q2 18, FY 18 and FY 19; Q1 18 fell from -$0.03 to -$0.11, Q2 18 was cut from $0.00 to -$0.07, FY 18 plummeted from $0.12 to -$0.19, and FY 19 dropped from $0.10 to -$0.25.

If you are inclined to invest in the Diversified Communication Services segment, you would be best served by looking into either BT Group Plc ( BT ), and or Telefonica SA ( TEF ) both of whom currently carry a Zacks Rank #2 (Buy) rating.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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