Is a Beat in Store for Comcast (CMCSA) This Earnings Season?

Comcast CorpCMCSA , the leading cable multi-service operator (MSO) in the United States, is slated to report third-quarter 2017 results on Oct 26, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 8.33%. Moreover, the company's earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 7.77%.

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

Why Do We Expect a Positive Surprise?

Our proven model shows that Comcast is likely to beat estimates because it has the right combination of the two key elements.

Zacks ESP: Comcast has an Earnings ESP of +1.95%. This is because the Most Accurate estimate is at 50 cents, while the Zacks Consensus Estimate is pegged at 49 cents. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Comcast has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates.

Meanwhile, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of the company's favorable Zacks Rank and positive ESP makes us confident of an earnings beat.

Comcast Corporation Price and EPS Surprise

Comcast Corporation Price and EPS Surprise | Comcast Corporation Quote

What is Driving the Better-than-Expected Earnings?

Comcast completed the nationwide rollout of its wireless services under the Xfinity Mobile brand, along with plans to include YouTube in its X1 video platform. Comcast is venturing into residential solar programs with a 40-month deal with Sunrun Inc RUN . The company is working toward 5G-network deployment and continues to roll out its DOCSIS 3.1-based internet services to commercial customers.

Comcast has forayed into the over-the-top video delivery market with the launch of its Internet TV service, Stream. We believe that this will aid the company to check customer churn and provide viewers with more streaming options and flexibility at competitive prices. Further, Comcast's Cable business is doing well and the NBC Universal segment is witnessing significant improvement. The improvement is evident from revenues in the last reported quarter. Notably, Cable Communications Segment's total revenue amounted to $13,122 million, up 3.9% rise year over year. NBC Universal Segment's total revenue was $8,331 million, up 17.3% year over year. We expect to witness the same in the third quarter of 2017.

Further, the company continues to strengthen foothold in the Internet-of-Things (IoT) space and also in the lucrative digital media market through various deals.

On the flip side, we are concerned about Comcast's operation in a saturated and competitive multi-channel U.S. video market. Like other cable operators, the company continues to lose subscribers to online video streaming service providers such as Netflix Inc NFLX ,, YouTube etc. because of their cheap source of TV programming. In the second quarter of 2017, Comcast lost 34,000 video customers and 22,000 voice customers in the residential segment.

Further, gaining customers from competitors is a difficult task as most pay-TV operators are offering innovative packages. Meanwhile, we opine that the high-debt levels are a potential hazard. Moreover, the U.S. pay-TV industry remains affected by the ongoing massive consolidation between telecom and cable TV operators to strengthen their base. Another major concern for Comcast is its spiraling programming expenses.

Due to such headwinds, the company's shares have declined 8.1% compared with the industry 's decline of 4.2%.

When compared with the market at large, the stock's performance does not impress, compared with the S&P 500 index's rally of 3.6%.

A Closer View of Certain Important Metrics

Improvement in revenues holds promise for Comcast's segments. The Zacks Consensus Estimate projects Cable Communications' revenues at around $13,211 million, while the same for NBC Universal segment is anticipated at $8,112 million.

In the third quarter of 2017, Comcast will have 25.582 million high-speed internet customers, 11.623 million voice customers and 22.469 million video customers, as per estimates.

Key Pick

Penn National Gaming, Inc PENN from the broader Consumer Discretionary sector has the right combination of elements to post an earnings beat when it reports third-quarter fiscal 2017 results on Oct 26. Comcast has an Earnings ESP of +4.55% and a Zacks Rank #2.You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The company's earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 97.82%.

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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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