Shares of telecom service provider Cincinnati Bell Inc. (CBB - Free Report) tumbled to a 52-week low of $13.30 during the trading session on Mar 23. However, the stock recovered marginally to close at $13.35, down 0.7%.
In fact, the stock has not performed well in the past three months. Shares of Cincinnati Bell have lost 36.7% compared with the industry’s fall of 7.2% in the said time frame.
Reasons for the Underperformance
Cincinnati Bell continues to experience erosion in high margin local access lines. At the end of 2017, Cincinnati Bell had 0.1837 million residential voice lines (down 8.7% y/y). However, business voice lines were 0.3331 million (up 3.3% y/y). Long distance lines were 0.2936 million, down 7.5% year over year.
The trajectory of access line losses is expected to continue in the upcoming quarters. This is because with Digital Subscriber Line (DSL) and cable modems gaining widespread acceptance, customers are deactivating the extra phone lines. In addition, the shift toward wireless services and aggressive rollout of VoIP and long distance services by Tier-1 competitors such as AT&T and Verizon in Cincinnati and Dayton have further resulted in access line erosion. Also, Cincinnati Bell is confronting competitive threats from local cable operators who aggressively deploy local phone service in addition to television. This has already resulted in the loss of major business customers.
In an attempt to stay ahead in the competition, expansion, maintenance and upgrade of networks with various technologies have become necessary. This adds to the company’s capital expenditures. Further, intensifying competition in the company’s operational region can be a drag on its pricing power, thereby putting pressure on margins.
Downward Estimate Revisions, Zacks Rank & Style Score
Over the last 60 days, the Zacks Consensus Estimate for current quarter earnings has declined 333.33% to a loss of 13 cents per share. The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
The downward estimate revisions along with the bearish Zacks Rank #5 (Strong Sell) reflect pessimism over prospects of Cincinnati Bell.
Additionally, the stock has an unattractive VGM Score of C. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Other Bearish Reading
Cincinnati Bell’s return on capital (ROC) is 0.1% compared with 5.6% for the industry. This implies that the company generates a lower return on investment than its industry.
Stocks to Consider
Some better-ranked stocks in the broader Utilities sector are Shenandoah Telecommunications Co (SHEN - Free Report) , Telefonica SA (TEF - Free Report) and BT Group PLC (BT - Free Report) . While Shenandoah sports a Zacks Rank #1 (Strong Buy), Telefonica and BT Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sales for Shenandoah, Telefonica and BT Group are estimated to rise 3.8%, 4.3% and 8.4%, respectively, for full-year 2018.
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