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Charter Communications (CHTR) Q3 Earnings: What's in Store?

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Charter Communications Inc (CHTR - Free Report) , the second-largest cable MSO in the United States, is slated to report third-quarter 2017 results on Oct 26, before the opening bell.

Last quarter, the company delivered a negative earnings surprise of 35.80%. Moreover, the company’s earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 23.47%.

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

Factors at Play

We are concerned about Charter Communications’ operations in a saturated and competitive multi-channel U.S. video market. Like other cable operators, the company continues to lose subscribers to online video streaming service providers such as Netflix Inc (NFLX - Free Report) , Hulu.com, YouTube etc. because of their cheap source of TV programming. Notably, in the second quarter of 2017, the company lost 90,000 video customers in the residential segment.

Further, gaining customers from competitors is a difficult task as most pay-TV operators are offering innovative packages. Meanwhile, we opine that high-debt levels are a potential hazard. Moreover, the U.S. pay-TV industry remains affected by the ongoing massive consolidation between telecom and cable-TV operators to strengthen their base.

We hope that the cable company’s recent carriage disputes with different channels will not severely affect the company’s to-be-reported quarterly earnings results.

Due to such headwinds, the company’s shares have declined 0.8% compared with the industry’s decline of 4.1% over the past three months.


 

When compared with the market at large, the stock’s performance fails to impress as compared with the S&P 500 index's rally of 3.6%.



 

On the flip side, we are bullish about Charter Communications’ efforts to venture into the U.S. wireless industry with plans to launch its wireless services in 2018. Notably, the company has an agreement with national telecom behemoth Verizon Communications Inc (VZ - Free Report) to operate as an MVNO (mobile virtual network operator) using the latter’s wireless network. The company will utilize Verizon’s wireless network together along with its WiFi network to offer mobile services.

Moreover, the twin buyout of Time Warner Cable and Bright House Networks have strengthened the company’s foothold in hybrid fiber coax (HFC) and fiber networks. 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 should aid the upcoming results.

A Closer View of Certain Important Metrics

The Zacks Consensus Estimate projects how the Commercial segment of Charter Communications will perform in the to-be-reported quarter. Estimates show that the company will gain 331,000 high-speed Internet and 8.46 million video subscribers, losing 51,000 video subscribers.

The Residential segment holds promise for the company in the to-be reported quarter, with revenues estimated at $8,368 million, which is higher than the previous quarters.

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 +5.37%. This is because the Most Accurate estimate is at $1.09, while the Zacks Consensus Estimate is pegged at $1.04. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: Charter Communications has a Zacks Rank #4 (Sell). Notably, 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.

Key Pick

Comcast Corp (CMCSA - Free Report) , from the broader Consumer Discretionary sector, has the right combination of elements to post an earnings beat when it reports third-quarter fiscal 2017 results on Oct 26. Comcast has an Earnings ESP of +3.16% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comcast’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 7.77%.

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