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Charter Communication (CHTR) Q2 Earnings: What's in Store?

Charter Communications Inc. CHTR, the second largest cable MSO in the U.S., is slated to report second-quarter 2017 results on Jul 27, before the opening bell.

Last quarter, the company delivered a negative earnings surprise of 42.42%. However, the company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 94.11%.

Over these last months, shares of Charter Communications have witnessed an increase of 1.62%, outshining the industry‘s decline of 0.74%.

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

Factors Likely to Influence this Quarter

We are impressed with Charter Communications’ efforts to venture into the U.S. wireless industry along with the U.S. cable multi-service operators (MSO) Comcast Corp. CMCSA. We look forward to how these cable companies will explore their opportunities while accelerating and enhancing each other’s ability to participate in the national wireless marketplace. For this wireless venture, the companies will be using U.S. telecom behemoth Verizon Communications Inc.’s VZ wireless network, through a Mobile Virtual Network Operator (MVNO) agreement.

The twin buyout of Time Warner Cable and Bright House Networks have strengthened its foothold in hybrid fiber coax (HFC) and fiber networks. This will aid the company to better address small, medium-sized and large businesses. Notably, the Time Warner Cable and Bright House deals have benefited Charter Communications in terms of geographic expansion and operating cost synergies. This should boost the company’s 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.

On the other hand, we are concerned about the company’s operation in a saturated and competitive 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 cheap source of TV programming. Furthermore, gaining customers from competitors is a difficult task as most pay-TV operators are offering innovative packages. Meanwhile, we opine that the high debt levels are a potential hazard.

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

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 -20.99%. This is because the Most Accurate estimate stands at 64 cents while the Zacks Consensus Estimate is pegged at 81 cents. You can uncover the best stocks to buy or sell before they’re reported with our https://www.zacks.com/premium/esp-buy?adid=zp_article_espfil...">Earnings ESP Filter.

Zacks Rank: Charter Communications has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative 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.

Key Pick

Here is a company in the broader Consumer and Discretionary sector, which houses Charter Communications, that has the right combination of elements to post an earnings beat this quarter.

Penn National Gaming, Inc. PENN is set to release second-quarter 2017 results on Jul 27. The company has an Earnings ESP of +8.33% and holds a Zacks Rank #2. You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank stocks here.

The company’s earnings surpassed the Zacks Consensus Estimate in all the previous four quarters, with an average beat of 114.19%.

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