Can Discovery (DISCA) Deliver a Beat This Earnings Season?

Discovery Communications, Inc. DISCA is scheduled to report third-quarter 2017 results on Nov 2, before the market opens.

Last quarter, the company witnessed a negative earnings surprise of 4.2%. Its earnings (on an adjusted basis) of 68 cents per share missed the Zacks Consensus Estimate of 71 cents. Also, the bottom line contracted 4.23% on a year-over-year basis.

Discovery’s second-quarter revenues of $1,745 million improved 2.2% on a year-over-year basis. However, the top line missed the Zacks Consensus Estimate of $1,764.4 million.

Let’s see how things shape up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Discovery is likely to beat on earnings this quarter because it has the perfect combination of the following two key ingredients:

Zacks ESP: Discovery has an Earnings ESP of +0.46%, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. A positive Zacks ESP is indicative of a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Discovery carries a Zacks Rank #3 (Hold). Notably, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

What is Driving the Better-than-Expected Earnings?

Discovery’s joint venture with The Enthusiast Network (“TEN”) in August for automotive media is likely to aid results in the third quarter. This move marks the company’s entry into direct-to-consumer offerings. Discovery will take a majority controlling interest in the new venture with options to acquire 100% of its business.

Notably, Discovery has inked multiple deals to expand its reach. In September, the company renewed its distribution partnership with AT&T. The long-term carriage deal is aimed at expanding its portfolio of networks across more platforms. Following its renewal, the company's networks are available on all platforms of DirecTV.  This strategy is further expected to buoy results in the soon-to-be-reported quarter.

The company’s initiatives to reward shareholders through buybacks are also impressive.

However, declining advertising revenues have been hurting Discovery for quite some time now, besides foreign currency movements and higher costs. This might hit the top line in the third-quarter as well. The Zacks Consensus Estimate for third-quarter advertising revenues stands at $693 million, much below the previous quarter’s reported figure of $805 million.

Additionally, high costs are expected to affect the bottom line in the third quarter. Total costs are expected to grow in the range of high single to low double digits in the third quarter.

Discovery Communications, Inc. Price and EPS Surprise

 

Discovery Communications, Inc. Price and EPS Surprise | Discovery Communications, Inc. Quote

Other Stocks to Consider

Investors interested in the broader Consumer Discretionary sector may also consider Scripps Networks Interactive, Inc SNI, Activision Blizzard, Inc ATVI and Belmond Ltd. BEL asthese stocks possess the right combination of elements to come up with an earnings beat in their next releases.

Scripps Networks has an Earnings ESP of +5.10% and also carries a Zacks Rank of 3. The company is scheduled to report third-quarter 2017 results on Nov 1.

Activision Blizzard has an Earnings ESP of +5.80% and sports a Zacks Rank of 1. The company will report third-quarter 2017 earnings numbers on Nov 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Belmond has an Earnings ESP of +6.25%. The Zacks #3 Ranked company will reveal third-quarter results on Nov 6.

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