Take-Two Interactive Software Inc. TTWO is set to report first-quarter fiscal 2016 results on Aug 10. Last quarter, the company delivered a positive earnings surprise of 250%. The company delivered positive earnings surprises in the last four quarters, leading to an average positive earnings surprise of 88.90%. Let’s see how things are shaping up for this announcement.
Factors to Consider
We believe that Take-Two’s robust product pipeline will drive top-line growth and profitability in the fiscal first quarter. The launch of NBA 2K15, Evolve, Borderlands: The Pre-Sequel and Civilization: Beyond Earth will aid the top line, in our view. Further, Take-Two sales are gaining from Grand Theft Auto V, digital revenues and associated DLC revenues.
Although Take-Two has a healthy product pipeline, we believe that it will be challenging for the upcoming games to repeat the success of Grand Theft Auto V. The company is rumored to release its next installment of Grand Theft Auto 6 in 2017. Despite a loyal customer base, a 2017 release will be way too slow to capture market share from the likes of Electronic Arts (EA), Activision ATVI and Zynga ZNGA. Moreover, Take-Two's overdependence on console gaming sales and the lack of mobile gaming titles is a major headwind over the near term.
Earnings Whispers
Our proven model does not conclusively show that Take-Two is likely to beat earnings this quarter. This 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.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 27 cents. Hence, the difference is of 0.00%.
Zacks Rank: Take-Two’s Zacks Rank #1 (Strong Buy) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stock to Consider
Here is a company, which you may consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:
Amtech Systems Inc. ASYS, with an Earnings ESP of +8.00% and a Zacks Rank #3.
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