What Awaits Windstream (WIN) this Earnings Season?
We expect Windstream Holdings, Inc.WIN to beat expectations when it reports third-quarter 2015 financial numbers on Nov 5, before the opening bell.
Last quarter, Windstream recorded a 21.31% positive earnings surprise. Moreover, the company's earnings have outpaced the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 65.75%. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Windstream is likely to beat estimates because it has the perfect combination of two key ingredients.
Zacks ESP : Earnings ESP for Windstream is +7.50% because the Most Accurate Estimate stands at a loss of 37 cents while the Zacks Consensus Estimate is pegged at a loss of 40 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive surprise.
Zacks Rank : Windstream currently has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) 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 Windstream's Zacks Rank #2 and +7.50% ESP makes us reasonably confident of a bottom-line beat.
What is Driving the Better-than-Expected Earnings?
Notably, Windstream is currently focusing on optimizing its last mile network and cutting costs. For 2015, the company has selected five markets where it intends to create a meshed network around its existing network rings to provide last mile access. Management has decided to spend $25 million initially to increase its on-net fiber buildings in these markets. We expect the company's latest initiative to bring in considerable savings.
Also, Windstream is gradually expanding its wave transport services with 100 Gbps data transmission speeds in the U.S. The company is using Infinera Corp.'s INFN DTN-X platform to expand its network and meet growing demand for large data transmissions.
Moreover, the company's relentless focus on improving sales, cost-cutting initiatives and planned pricing initiatives should drive revenues and margins in the to-be-reported quarter. Investments made in data center and fiber expansion should further boost revenues. Additionaly, consistent deployment of its next generation Ethernet and Internet networking solution - Fixed Wireless - bode well.
However, threats from a competitive market, soft carrier transport business and a highly leveraged balance sheet are certain factors that may affect the quarter's performance.
Stocks to Consider
Windstream is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Facebook, Inc. FB has an earnings ESP of +5.71% and a Zacks Rank #1.
CenturyLink, Inc. CTL has an earnings ESP of +1.45% and a Zacks Rank #2.