Is a Beat in the Cards for Discovery (DISCA) in Q4 Earnings?

Discovery Communications, Inc. DISCA is scheduled to report fourth-quarter 2017 results on Feb 27, before the market opens.

Last quarter, the company delivered a negative earnings surprise of 21.8%. Its earnings (excluding 5 cents from non-recurring items) of 43 cents per share missed the Zacks Consensus Estimate of 55 cents. The bottom line, however, expanded 19.4% on a year-over-year basis. Third-quarter revenues of $1,651 million improved 6.1% on a year-over-year basis. Also, the top line outpaced the Zacks Consensus Estimate of $1,638.2 million.

However, things are looking up for the company lately. Shares of the company have surged 35.4% in the last three months, outperforming the industry’s 19.9% rally.

 

 

Moreover, the stock has seen the Zacks Consensus Estimate for fourth-quarter earnings being revised 5.3% upward over the last 30 days.

What Does our Model Say?

Our proven model  shows that Discovery is likely to beat on earnings this quarter because it has the perfect combination of the following two key ingredients:

Zacks ESP: Discovery has an Earnings ESP of +6.58%. This is because the Most Accurate Estimate is pegged at 43 cents per share, higher than the Zacks Consensus Estimate of 40 cents. A positive Zacks ESP is indicative of a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Discovery carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of beating estimates, further when combined with a positive ESP.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Discovery Communications, Inc. Price and EPS Surprise

 

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

Factors Likely at Play

The U.S. Networks division is expected to perform well in the fourth quarter, thereby driving results. The Zacks Consensus Estimate for fourth quarter U.S. Networks revenues stands at $853 million, above $812 million reported a year ago.

Discovery has been inking multiple deals of late to expand its reach. These are likely to aid results in the fourth quarter.

In December 2017, the company decided to increase its stake in Oprah Winfrey Network (“OWN”) by 24.5% to acquire a majority interest in the company. Following completion of this deal, Discovery will have 70% stake in OWN.
Additionally, Discovery entered into a joint venture with The Enthusiast Network for automotive media, which marks its entry into direct-to-consumer offerings space.

Further, the company has renewed its distribution partnership with AT&T Inc. T. This long-term carriage contract is aimed at expanding its portfolio of networks across more platforms. Following the renewal, the company's networks will be available on all platforms of DirecTV.

The company’s efforts to reward shareholders through buybacks are another positive.

However, quarterly results might be negatively impacted by challenges plaguing the advertising market in the United States. Discovery expects ad revenues to be flat in the fourth quarter. Escalated debt levels and high costs pose further threats to its earnings release in the to-be-reported quarter.

Discovery’s decision to acquire Scripps Networks Interactive, Inc. SNI is anticipated to be closed shortly. Updates on the buyout will be available on fourth-quarter conference call.

Another Stock to Consider

Investors interested in the broader Consumer Discretionary sector may also consider AMC Entertainment Holdings, Inc. AMC as the stock has the right combination of elements to beat estimates in its next release.

AMC Entertainment has an Earnings ESP of +3.12% and a Zacks Rank of 3. The company is scheduled to report fourth-quarter 2017 financial numbers on Mar 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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