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What's in the Cards for Windstream (WIN) in Q4 Earnings?

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Windstream (WIN - Free Report) is slated to report fourth-quarter 2017 results on Feb 22, before market open. Based in Arkansas, the company is a leading rural local exchange carrier in the United States.

The Zacks Consensus Estimate for revenues is pegged at $1.49 billion, reflecting year-over-year improvement of 13.7%. The Zacks Consensus Estimate is pegged at a loss of 39 cents per share, indicating year-over-year growth of 23.5%.

Meanwhile, the company has a negative earnings surprise history. Earnings lagged the Zacks Consensus Estimate in three of the previous four quarters, with an average miss of 57.0%.

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

Factors Likely to Influence Q4 Earnings

We appreciate Windstream’s focus on improving sales, cutting costs and pricing initiatives, which are expected to boost profitability and check churn. Meanwhile, the company is seeking diversification from legacy telecom services to more business, enterprise, and wholesale opportunities. To meet this end, Windstream has made a significant financial investment to upgrade the company’s network and product portfolio, including significant advances in software-defined wide area network (SD-WAN) capabilities and a new Cloud Core architecture. Additionally, the acquisitions of EarthLink and Broadview have also played a major role in boosting the company’s SD-WAN and cloud suite.

The launch of a multi-featured SD-WAN solution and its cloud-to-cloud disaster recovery management solutions should rake in considerable profits. Expansion of its metro fiber network business in newer areas and its aim to extend the deployment of technologies over traditional copper telephone wires bode well.

The company announced SDN-enabled multi-vendor services partnerships with Ciena Corporation (CIEN - Free Report) , Infinera Corporation (INFN - Free Report) and Coriant in the MEF17 Proof of Concept showcase. MEF17 focuses on advancing Third-Network connectivity and cloud services for the digital economy & the hyper-connected world.

However, in the past three months, Windstream has not performed well.  The stock price has declined 35.5%, underperforming the industry’s gain of 5.3% in the said time frame.


Moreover, Windstream has been losing access lines, thanks to pricing pressure and fierce competition. The company is under pressure due to losses in the wholesale business. Being a local exchange carrier, Windstream is 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 financial profile, we are 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 39 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.

Stock to Consider

SBA Communications (SBAC - Free Report) from the broader Computer and Technology sector has the right combination of elements to post an earnings beat in fourth-quarter 2017 on Feb 23. The company has an Earnings ESP of +7.80% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s sales for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 5% and 6.4%, respectively.

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