We expect The Madison Square Garden Company (MSG) to beat expectations when it reports fiscal second-quarter 2015 results on Feb 6. Last quarter, the company posted a negative earnings surprise of 25.00%. Let us see how things are shaping up for the upcoming announcement.
Why a Likely Positive Surprise?
Our proven model shows that Madison Square Garden is likely to beat earnings estimates because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +6.94%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Madison Square Garden has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Madison Square Garden’s Zacks Rank #2 and +6.94% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
MSG’s revenues have surpassed the Zacks Consensus Estimate over the last six quarters and increased year over year. The upside in revenues reflects higher event-related revenues at all the company's venues — especially The Theater at Madison Square Garden, the Madison Square Garden Arena and the Forum and The Chicago Theatre — as well as higher venue-related sponsorship revenues. Also, higher event-related revenues from live sporting events have been contributing to the top line.
With a strong portfolio of strategically aligned venues, content and distribution channels, we believe that the company remains well positioned to increase its revenues in the to-be reported quarter. The company continues to organize a wide range of special events featuring popular international performers.
The coverage of summer programs which include Major League Soccer’s New York Redbulls, the Knicks Summer League as well as exclusive coverage of the New York Giants’ training camp would boost second-quarter revenues. Given the company’s initiatives, we expect it to continue to post strong revenues in the second quarter.
However, an increasing number of events would automatically increase expenses. This would, in turn, put pressure on earnings and adjusted operating cash flow (an appropriate measure for evaluating the operating performance per the company) as has been the case over the past few quarters.
In Oct 2014, the company’s board approved plans to separate its entertainment businesses from the media and sports businesses, resulting in two companies. This would help both the companies to concentrate more on their core competencies, and grow rapidly within the vastly competitive entertainment business.
Other Stocks to Consider
Other stocks in the broader consumer discretionary sector that have both a positive earnings ESP and a favorable Zacks Rank are:
The Walt Disney Company (DIS), with an Earnings ESP of +2.78% and a Zacks Rank #3 (Hold).
Boyd Gaming Corporation (BYD), with an Earnings ESP of +16.67% and a Zacks Rank #2.
Live Nation Entertainment, Inc. (LYV), with an Earnings ESP of +30.95% and a Zacks Rank #2.
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