Will Charter Communications (CHTR) Surprise in Q4 Earnings?

Charter Communications Inc.CHTR , the second largest cable MSO in the U.S., is slated to report fourth-quarter 2016 results on Feb 16, before the opening bell.

The fourth-quarter 2016 financial report will be based on the company's different business activities, financial operations and other operations during the October-December period of 2016. Over these three months, shares of Charter Communications witnessed growth of 6.65% while the Zacks categorized Cable TV industry gained 0.73%.

Last quarter, the company posted a positive earnings surprise of 11.29%. However, the company's earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 142.37%.

Let's see how things are shaping up for this announcement.

Factors at Play

We are impressed with Charter Communications' decision to merge with Time Warner Cable and Bright House Networks, which have strengthened its foothold in hybrid fiber coax (HFC) and fiber networks. This should also help Charter Communications better address small, medium-sized and large businesses. Notably, the Time Warner Cable and Bright House deals have benefited Charter in terms of geographic expansion and operating cost synergies, which in turn, should boost its bottom line and free cash flow in the upcoming quarterly results.

The company has also forayed into wireless telecom service, following the footsteps of Comcast Corp. CMCSA . The company is also adopting various initiatives to improve its Spectrum products and cloud-based user interfaces. Also, accelerated residential and commercial customer growth, investments in business services division and rollout of several initiatives bode well.

On the flip side, Charter Communications continues to operate in a saturated multi-channel U.S. video market. Moreover, the company faces stiff competition from online video streaming service providers such as Netflix Inc. NFLX ,, YouTube etc. as they provide an extremely cheap source of TV programming. Furthermore, gaining customers from competitors is a difficult task as most pay-TV operators are offering innovative packages. Moreover, the company has a leveraged balance sheet.

Earnings Whispers

Our proven model does not conclusively show that Charter 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: Charter Communications has an Earnings ESP of -9.43%. This is because the Most Accurate estimate stands at 96 cents while the Zacks Consensus Estimate is pegged higher at $1.06. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Charter Communications has a Zacks Rank #3 which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Charter Communications, Inc. Price and EPS Surprise

Charter Communications, Inc. Price and EPS Surprise | Charter Communications, Inc. Quote

Stock to Consider

Here is a company in the broader Consumer Discretionary sector that has the right combination of elements to post an earnings beat this quarter.

Cinemark Holdings Inc. CNK is expected to release fourth-quarter 2016 results around Feb 23, 2017. The company has an Earnings ESP of +2.38% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

The company's earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 4.29%.

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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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