In This Article:
CommScope Holding Company, Inc.'s (NASDAQ:COMM) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.
We've discovered 4 warning signs about CommScope Holding Company. View them for free.
The Impact Of Unusual Items On Profit
To properly understand CommScope Holding Company's profit results, we need to consider the US$87m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If CommScope Holding Company doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
An Unusual Tax Situation
Just as we noted the unusual items, we must inform you that CommScope Holding Company received a tax benefit which contributed US$310m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! The receipt of a tax benefit is obviously a good thing, on its own. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.
Our Take On CommScope Holding Company's Profit Performance
In its last report CommScope Holding Company received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, we think it's very unlikely that CommScope Holding Company's statutory profits make it seem much weaker than it is. So while earnings quality is important, it's equally important to consider the risks facing CommScope Holding Company at this point in time. Every company has risks, and we've spotted 4 warning signs for CommScope Holding Company (of which 3 can't be ignored!) you should know about.