Will DreamWorks (DWA) Let Down Investors in Q2 Earnings?

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DreamWorks Animation SKG Inc . DWA is expected to release second-quarter 2016 results on Aug 2.

In the last quarter, the Glendale, CA-based company posted a positive earnings surprise of way over 100%. In fact, the company beat the Zacks Consensus Estimate in each of the last four quarters, by an average of over 100%.

Factors at Play

DreamWorks has been struggling to drive revenues, thanks to a series of box-office flops. Moreover, lack of business diversification and intense competition in the entertainment industry has taken a toll. The company's efforts to grow through agreements with the likes of Netflix and Alphabet Inc's GOOGL YouTube also failed to boost investor confidence. 

The company is expected to be acquired by Comcast Corporation by the end of this year. As per media reports, Comcast has received the U.S. Department of Justice (DoJ) approval for the takeover. The combined entity is expected to prove competitive to industry leaders such as Viacom Inc. VIAB and Walt Disney Corp. We expect further details on the merger during the second quarter conference call.

DREAMWORKS ANIM Price and EPS Surprise


Earnings Whispers

Our quantitative model shows that the company is unlikely to beat the Zacks Consensus Estimate in the second quarter. Here's why:

DreamWorks does not have the right combination of two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better - required to top expectations.

Zacks ESP : Earnings ESP for DreamWorks is around -200.00%. This is because the Most Accurate estimate currently stands at a loss of 18 cents, much wider than the Zacks Consensus Estimate of a loss of 5 cents per share.

Zacks Rank : DreamWorks carries a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is witnessing negative estimate revisions, as is the case with DreamWorks.  

Stock to Consider

With DreamWorks likely to disappoint, here is a company in the broader Consumer Discretionary sector that you may want to consider as our model shows it has the right combination of elements to post an earnings beat this quarter.

CDK Global Inc. CDK has an earnings ESP of +4.26% and a Zacks Rank #1 (Strong Buy). The company is scheduled to report earnings on Aug 3.

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CDK GLOBAL INC (CDK): Free Stock Analysis Report

DREAMWORKS ANIM (DWA): Free Stock Analysis Report

VIACOM INC-B (VIAB): Free Stock Analysis Report

ALPHABET INC-A (GOOGL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Business , Investing , Earnings , Stocks
Referenced Symbols: CDK , VIAB , GOOGL

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