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Will CBS Outdoor Americas (CBSO) Surprise Q3 Earnings?

CBS Outdoor Americas Inc. (CBSO) is slated to report third-quarter 2014 results on Nov 4, after the closing bell.

This company, which leases advertising space on out-of-home advertising structures and sites across the U.S., Canada and Latin America, began operating as a real estate investment trust (:REIT) on Jul 17, 2014.

Last quarter, the company had missed the Zacks Consensus Estimate by 13.64%. Over the last 7 days, the Zacks Consensus Estimate for the third-quarter has gone down by 5 cents to settle at 26 cents per share.

Is the company poised for a winning quarter? Let’s see how things are shaping up for this announcement.

Factors to Consider

For CBS Outdoor Americas, 2014 has been a year of transformation. This includes the company’s IPO in March, its parting from CBS Corporation (CBS) and conversion to a REIT in July, purchase of outdoor assets from Van Wagner in October and presently, its re-branding as Outfront Media Inc. The re-branding is taking place through the company’s online reintroduction and on the New York Stock Exchange under the ticker symbol “OUT” on Nov 20, 2014.

In the second quarter, market softness has been experienced in national advertising. However, the company expects a bit of improvement in the national trends in the third quarter, as compared with the second quarter. As such, the company projects third-quarter overall revenue growth in the low single-digit range.

On the other hand, the company needs to bear incremental standalone costs required to run as a standalone public company, separate from CBS. In the third quarter, the company expects the incremental costs to swell slightly more.

Notably, the company’s third-quarter results will reflect a non-cash reversal into net income of significantly all the deferred taxes present in Jun 30, 2014 balance sheet. This comes in relation to its conversion to a REIT.

Moreover, last week, CBS Outdoor Americas announced a quarterly dividend of 37 cents per share on its common stock. This was in addition to the approval announcement of a special dividend of about $547.7 million on its common stock, or $4.56 per share based on its current outstanding shares.

This special dividend comes as part of the company’s accumulated earnings and profits distribution according to the REIT requirements. Usually, companies that qualify as REIT enjoy favorable tax treatment.

Earnings Whispers?

Our proven model does not conclusively show that CBS Outdoor Americas will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 26 cents per share. Hence, the difference is 0.00%.

Zacks Rank: CBS Outdoor has a Zacks Rank #3 (Hold). This, when combined with an Earnings ESP of 0.00%, makes surprise predictions difficult.

Notably, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks in the REIT sector that have both a positive Earnings ESP and a favorable Zacks Rank:

Diamondrock Hospitality Co. (DRH) has an Earnings ESP of + 4.35% with a Zacks Rank #2 (Buy). The company will report third-quarter results on Nov 4.

Ryman Hospitality Properties, Inc. (RHP) has an Earnings ESP of + 5.06% with a Zacks Rank #2. The company will report third-quarter results on Nov 4.

Read the Full Research Report on CBSO
Read the Full Research Report on CBS
Read the Full Research Report on DRH
Read the Full Research Report on RHP


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