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Can Windstream (WIN) Spring a Surprise this Earnings Season?

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Leading local exchange carrier in the U.S., Windstream Holdings Inc. (WIN - Free Report) , is slated to report second-quarter 2017 financial numbers before the opening bell on Aug 3.

Last quarter, the company delivered a negative earnings surprise of 161.76%. Moreover, the company’s earnings lagged the Zacks Consensus Estimate in three of the previous four quarters, with an average miss of 42.58%.

Over the past three months, shares of Windstream have lost 27.57% compared with the industry‘s decline of 0.62%.

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

Factors Likely to Influence this Quarter

We appreciate Windstream’s efforts to reward its stockholders with a quarterly dividend of 15 cents per share on the company’s common stock, payable on Jul 17, 2017, to stockholders of record as of Jun 30, 2017.

We appreciate the company’s focus on improving sales, cutting cost and planning pricing initiatives, which are expected to lead to profits and check churn. Windstream’s cloud-to-cloud disaster recovery management solutions replicate mission-critical virtual servers and data. Launch of Kinetic TV services in 13 North Carolina communities was aimed at boosting broadband revenues and customer ARPU (average revenue per user). The company is striving to reverse the subscriber decline trend experienced last quarter.

Also, expansion of its metro fiber network business in Atlanta, Minneapolis, Philadelphia, St. Louis, Cleveland, Dallas, Chicago, Little Rock, Detroit, Indianapolis and Knoxville bodes well. Meanwhile, the merger with EarthLink Holdings Corp. is sure to boost Windstream’s SD-WAN (software-defined wide area network) suite. The deal has strengthened the company’s footprint, taking its total to 145,000 route miles, in Southeast and Northeast U.S. Moreover, the merged entity is expected to save around $125 million in operating and capital expenses annually.

On the flip side, Windstream has been losing access lines due to pricing pressure and fierce competition. The company is also under pressure with losses in the wholesale business. Being a local exchange carrier, Windstream remains exposed to stringent regulatory measures by the Federal Communications Commission as well as state regulations.

Further, continuous investments in technology and network upgrades may dent the company’s earnings. Outdated network equipment has been the primary reason for discontinuation of the DSL (digital subscriber line) service in CLEC (competitive local exchange carrier) territories across 25 states.

Despite management’s efforts to modify its financial profile, we remain concerned about Windstream’s highly leveraged balance sheet.

Earnings Whispers

Our proven model does not conclusively show that Windstream 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: Windstream has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 44 cents. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: Windstream has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies from the broader Computer and Technology sector that have the right combination of elements to post an earnings beat this quarter.

MSCI Inc. (MSCI - Free Report) has an Earnings ESP of +2.22% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company will report its second-quarter 2017 results on Aug 3. Its earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 6.32%.

Arrow Electronics Inc. (ARW - Free Report) has an Earnings ESP of +1.13% and carries a Zacks Rank #2. The company will release second-quarter 2017 earnings on Aug 3. The company’s earnings beat the Zacks Consensus Estimate in two of the previous four quarters, with an average beat of 0.90%.

Five9, Inc. (FIVN - Free Report) has an Earnings ESP of +10.00% and holds a Zacks Rank #2. The company    will release second-quarter fiscal 2017 results on Aug 3. Its earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 44.09%.                                                 

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