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Will Level 3 Communications' (LVLT) Q2 Earnings Disappoint?

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Level 3 Communications, Inc. is scheduled to report second-quarter 2017 financial numbers on Aug 2 after market closes.

In the last reported quarter, the company had delivered a negative earnings surprise of 8.11%. However, the company has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average earnings beat of 7.48%.

Over the past three months, the stock lost 2.1%, whereas the industry declined 1.8% over the same time frame.

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

Factors to Consider

Level 3 Communications operates in a highly competitive enterprise communications market. The company has to compete with telecom giants like Verizon Communications Inc. (VZ - Free Report) and AT&T Inc. (T - Free Report) , Telefonica, Orange, BT Group and America Movil SAB.

The company is a facilities-based provider of a range of integrated communications services. The fluctuations in the global macro economy might have an adverse effect on Level 3 Communications’ business, results of operations as well as financial condition. This is because the demand for its products and services depends substantially upon the continued development and expansion of the internet.

Customer concentration is a major concern for Level 3 Communications. Loss of any of these customers or consolidation among them will have a significant material impact on the company’s top line.

Foreign currency exchange rate risks also act as major dampeners for the company’s growth prospects. As it conducts a portion of its business in currencies other than the U.S. dollar, its operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar.

However, Level 3 Communications continues to have a strong presence in fields of enterprise networking including data networks, content distribution, managed services, securities, voice cloud and cloud connection.

Earnings Whispers

Our proven model does not conclusively show that Level 3 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: Level 3 Communications has an Earnings ESP of -2.56%. This is because the Most Accurate estimate stands at 38 cents, lower than the Zacks Consensus Estimate of 39 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Level 3 Communications 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.

Level 3 Communications, Inc. Price and EPS Surprise

Key Pick

Vishay Intertechnology, Inc. (VSH - Free Report) from the broader Computer and Technology sector has the right combination of elements to post an earnings beat when it expectedly reports second-quarter 2017 results on Aug 3. The company has an Earnings ESP of +6.06% and a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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