Discovery Communications Inc. DISCA is set to release first-quarter 2015 results before the opening bell on May 5.
In the previous quarter, the company posted a positive 4.88% earnings surprise. Let’s see how things are shaping up for this announcement.
Factors at Play
Discovery’s ad revenues are largely dependent on viewership ratings, which tend to change with time. In order to gain more viewers, the company needs to invest in new content to counter competition as well as cater to changing tastes and preferences of the audience.
Meanwhile, Discovery is facing stiff competition from various media players. Furthermore, growth of personal digital video recorders, video-on-demand technology, IPTV, smartphones and tablets have the potential to change the TV viewing landscape, which can hurt the company’s business.
Moreover, mega sporting events like the FIFA World Cup and the Olympics will further result in rating downgrades for the company. Discovery is also highly exposed to foreign currency exchange rate risks as the company generates nearly 50% of its revenues outside the U.S. Consequently, a strong dollar will hurt results in the first quarter of 2015.
Moreover, the company’s weak balance sheet is another headwind for the company. Furthermore, increased operating expenses are also likely to hurt the company’s first quarter results.
Earnings Whispers
Our proven model does not conclusively show that Discovery Communications 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 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 36 cents each. Hence, the ESP is 0.00%.
Zacks Rank: Discovery carries a Zacks Rank #4 (Sell). 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 as is the case here. The Zacks Consensus Estimate for the first quarter of 2015 has gone down by 4 cents over the last 90 days.
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 this quarter.
The Walt Disney Company DIS has an earnings ESP of +0.90% and carries a Zacks Rank #2.
Twenty-First Century Fox, Inc. FOXA has an earnings ESP of +2.56% and a Zacks Rank #3.
Nexstar Broadcasting Group, Inc. NXST has an earnings ESP of +5.88% and carries a Zacks Rank #3.
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