Charter Communications (CHTR) Poised to Beat on Q1 Earnings

Charter Communications Inc. CHTR, the second largest cable MSO in the U.S., is slated to report first-quarter 2017 results on May 2, before the opening bell.

Last quarter, the company posted a positive earnings surprise of 57.55%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 79.71%.

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

Why a Likely Positive Surprise?

Our proven model shows that Charter Communications is likely to beat estimates because it has the right combination of the two key elements.

Zacks ESP: Charter Communications has an Earnings ESP of +6.06%. This is because the Most Accurate estimate stands at $1.05 while the Zacks Consensus Estimate is pegged lower at 99 cents. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Charter Communications has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Charter Communications’ favorableZacks Rank and positive ESP makes us confident of an earnings beat.

Charter Communications, Inc. Price and EPS Surprise

 

Charter Communications, Inc. Price and EPS Surprise | Charter Communications, Inc. Quote

What is Driving the Better-than-Expected Earnings?

We are impressed with Charter Communications’ initiatives to upgrade its multiscreen app and launch an authenticated in-home and TV Everywhere app called Spectrum TV. This followed Charter Communications’ decision to merge with Time Warner Cable and Bright House Networks to unite the viewing experience of these two big MSOs on a single podium.

This twin buyout have strengthened its foothold in hybrid fiber coax (HFC) and fiber networks. This should also help Charter Communications better address small, medium-sized and large businesses. Notably, the Time Warner Cable and Bright House deals have benefited Charter in terms of geographic expansion and operating cost synergies, which in turn, should boost its bottom line and free cash flow in the to-be-reported quarter.

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 help the upcoming results. Over these three months, shares of Charter Communications witnessed growth of 6.3% outshining the Zacks categorized Cable TV industry gain of 4.8%.

On the other hand, Charter Communications continues to operate in a saturated multi-channel U.S. video market. Moreover, the company faces stiff competition from online video streaming service providers such as Netflix Inc. NFLX, Hulu.com, YouTube etc. as they provide an extremely cheap source of TV programming. Furthermore, gaining customers from competitors is a difficult task as most pay-TV operators are offering innovative packages. Moreover, the company has a leveraged balance sheet.

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.

Key Picks

Here are some companies in the Zacks-categorized broader Consumer Discretionary sector — which houses Charter Communications — that have the right combination of elements to post an earnings beat this quarter.

Cinemark Holdings Inc. CNK is set to release first-quarter 2017 results on May 3. The company has an Earnings ESP of +3.39% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cinemark Holdings’ earnings beat the Zacks Consensus Estimate in three of the previous four quarters, with an average positive surprise of 14.90%.

AMC Networks Inc. AMCX is set to release first-quarter 2017 results on May 4. The company has an Earnings ESP of +1.02% and a Zacks Rank #3. Its earnings surpassed the Zacks Consensus Estimate only in the last reported quarter.

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