U.S. based gaming company, Churchill Downs Inc. (CHDN) is slated to report its second-quarter 2014 results on Jul 30. Last quarter, it posted a negative surprise of 300.0%. Let’s see what’s in store for the company this season.
Factors to Consider
Churchill Downs’ earnings have missed the Zacks Consensus Estimate in three out of the past four quarters. In fact, last quarter, the company reported a loss of 4 cents compared to a profit of 6 cents in the year-ago quarter. Meanwhile, revenues missed the consensus mark through 2013 due to the adverse impacts of a sluggish U.S. economy.
Demand for entertainment and leisure activities is sensitive to consumers’ disposable incomes. Currently, incomes have been impacted by sluggish economic conditions. Factors like rising taxes and increase in gasoline prices have been compelling people to focus on their daily needs and defer non-essential and luxury expenditures. People are avoiding lavish spending activities such as racing and gaming, thereby hurting the profitability of this Kentucky-based company.
The situation is not expected to improve in the near-term. According to the International Monetary Fund, U.S. economic growth is expected to be the weakest this year since the recession ended. It expects 1.7% growth in 2014, down from 2.0% anticipated in June.
Moreover, Churchill Downs’ profits are expected to be hurt by higher interest expenses due to its higher debt levels. Year-to- date, share price of the company has declined 3.7%.
However, the Jul 2013 acquisition of Oxford Casino in Oxford and other joint venture and agreements should provide some support to the top line.
Earnings Whispers?
Our proven model does not conclusively show that Churchill Downs is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: Churchill Downs’ Earnings ESP, which represents the difference between the Most Accurate estimate of $3.09 and the Zacks Consensus Estimate of $3.39 per share, stands at -8.85%.
Zacks Rank #4 (Sell): We caution against stocks with Zacks #4 and #5 Ranks (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Other stocks in the gaming and consumer discretionary sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
MGM Resorts International (MGM) with an Earnings ESP of +45.4% and a Zacks Rank #3 (Hold).
Choice Hotels International Inc. (CHH) with an Earnings ESP of +2.0% and a Zacks Rank #2 (Buy).
Dish Network Corp. (DISH) with an Earnings ESP of +15.4% and a Zacks Rank #3.
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