Viacom's (VIAB) May Beat on Q1 Earnings: Stock to Gain?

We expect New York-based, Viacom, Inc.VIAB to report better-than-expected earnings in the first quarter of fiscal 2017. The company will release its results on Feb 9, before the market opens.

In the fourth quarter of fiscal 2016, the company reported a positive earnings surprise of 6.15%. The earnings beat for the fourth quarter was mainly due to a conservative Zacks Consensus Estimate of 65 cents per share, which happened to be much lower than the fourth-quarter fiscal 2015 figure of $1.52.

Total revenue in the quarter was $3,226 million, down 15% year over year. The top line also came in below the Zacks Consensus Estimate of $3,304 million. A strong U.S. dollar hurt the top line Let's see how things are shaping up for this announcement.

Viacom's stock has gained over 10% since the fourth-quarter earnings beat and comfortably outpaced the Zacks categorized Media-Conglomerates industry in the last one month. The stock increased 9.26% compared with the industry's gain of just 1.88%, over the same period.

Our quantitative model shows that Viacom is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP: The Earnings ESP for Viacom is +1.21% with the Most Accurate estimate exceeding the Zacks Consensus Estimate of 83 cents per share by a penny. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: Viacom carries 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 earnings estimates. Conversely, a Zacks Rank #4 or 5 (Sell-rated stock) should never be considered going into an earnings announcement.

The combination of Viacom's Zacks Rank #3 and a positive ESP makes us reasonably confident of an earnings beat.

Factors likely at Play

Viacom is looking to drive its bottom line by reducing costs. We expect Viacom's fiscal first-quarter results to benefit from cost-cutting measures. The company has been making a series of managerial changes of late as part of its efforts to improve efficiencies and script a turnaround. Moreover, it has been inking multiple deals of late, in a bid to expand further. To this end, Viacom inked a deal with Telefonica S.A TEF in Nov 2016, to acquire Television Federal S.A. (Telefe).

Another major development during the fiscal first quarter was the cancellation of Viacom 's proposed merger with CBS Corp. CBS . The merger would have given Viacom a much-needed boost after a plethora of management and performance issues that have been affecting it over the past few months. However, with a reshuffled board and management, the company might be poised for a turnaround and deliver better performance.

Despite all its struggles, an earnings beat might not be too difficult for Viacom in the quarter due to reduced expectations. The Zacks Consensus Estimate for the fiscal first quarter is pretty conservative, 29% below the year-ago figure of $1.17 per share.

Viacom Inc. Price and EPS Surprise

Viacom Inc. Price and EPS Surprise | Viacom Inc. Quote

A Stock to Consider

Apart from Viacom, here is another company in the broader Consumer Discretionary sector you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Time Warner Inc. TWX holds a Zacks Rank #3 and an Earnings ESP of +1.68%. It is scheduled to report fourth-quarter results on Feb 8. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 16.56%. You can see the complete list of today's Zacks #1 Rank stocks here .

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Time Warner Inc. (TWX): Free Stock Analysis Report

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Viacom Inc. (VIAB): 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.

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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