Can Discovery Communications Surprise Earnings in Q3?

Discovery Communications Inc. (DISCA) is set to release third-quarter 2014 financial numbers before the opening bell on Nov 4.

In the last quarter, the company delivered a 24.73% surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider

Discovery achieved viewership growth for the seventh successive year (inclusive of this year). Over the last five years, the company launched seven new channels in the U.S. Further, strong viewership ratings of several Discovery channels may help the company generate healthy advertising revenues going forward.

On the flipside, Discovery lacks new content to compete with other networks. Also, slowdown in the upfront TV advertising volumes, deteriorating cash position and mounting debts may pose considerable challenges to Discovery while moving ahead. Moreover, the company’s extensive global presence might expose it to foreign currency exchange rate risks.

Earnings Whispers?

Our proven model does not conclusively show that Discovery 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, 2 or at least 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%, as both these estimates stand at 41 cents.

Zacks Rank: Discovery’s Zacks Rank #3 (Hold) when combined with an ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:

The Walt Disney Company (DIS) with an earnings ESP of +3.41% and a Zacks Rank #2 (Buy).

Media General, Inc. (MEG) with an earnings ESP of +8.70% and a Zacks Rank #3.

DragonWave Inc. (DRWI) with an earnings ESP of +16.67% and a Zacks Rank #3.