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Discovery Communications (DISCA) Q4 Earnings: What's Up?

Discovery Communications Inc.DISCA is scheduled to report its fourth-quarter 2016 results on Feb 14, before market open.

Last quarter, Discovery posted a negative earnings surprise of 6.98%. However, the company's earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 0.86%.

Further, shares of Discovery returned 8.32% compared with the Zacks categorized Broadcast-Radio/TV industry's growth of 10.68% over the past three months.

Let's see how things are shaping up for this announcement.

Factors at Play

One of the major concerns for Discovery is customer concentration risk as the bulk of its revenues come from around 10% of its customers. Moreover, the company has been struggling to boost advertising revenues which comprise a significant portion of its total top line. Discovery's advertisement revenues are strongly dependent on viewership ratings, which tend to change with time. In order to register more viewers, the company invests in new content to counter competition as well as cater to audience taste and preference. The company's bottom line might also be impacted by unfavorable foreign exchange movements. We expect these headwinds to affect fourth-quarter earnings as well.

However, we are positive on the company's efforts to renew different agreements and ink new deals to deliver customer centric content and expand its business. Discovery's decision to renew its distribution partnership (long-term carriage deal) with AT&T Inc. T has expanded its portfolio of networks across more platforms. Moreover, the content distribution deal with Sony Corporation SNE is also a strategic move on Discovery's part. We also appreciate Discovery's efforts to reward its shareholders through repurchases and share buybacks.

Earnings Whispers

Our proven model does not conclusively show that Discovery 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 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Discovery has an Earnings ESP of -3.92%. This is because the Most Accurate estimate stands at 49 cents while the Zacks Consensus Estimate is pegged at 51 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Discovery has a Zacks Rank #4 (Sell).

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions as is the case for Discovery.

Discovery Communications, Inc. Price and EPS Surprise

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

Stock to Consider

Here is a company in the broader Consumer Discretionary sector that has the right combination of elements to post an earnings beat this quarter.

Cinemark Holdings Inc. CNK is expected to release fourth-quarter 2016 results around Feb 22, 2017. The company has an Earnings ESP of +2.38% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

The company's earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 4.29%.

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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.


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

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