What's in Store for Comcast (CMCSA) this Earnings Season?

Comcast Corp.CMCSA , the leading cable multi-service operator (MSO) in the U.S., is slated to report third-quarter 2016 results on Oct 26, before the opening bell.

Last quarter, Comcast posted a positive earnings surprise of 1.22%. However, the company's earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average beat of 1.58%. Let's see how things are shaping up for this announcement.

Factors at Play

Comcast's decision to venture into the U.S. wireless space bodes well with its diversified business model. The company is also participating in the ongoing 600 MHz wireless spectrum auction in the U.S. Comcast's Cable business is doing well and the NBC Universal segment is also witnessing significant improvement. Recently, NBC Universal purchased DreamWorks Animation for $3.8 billion and has also earned $250 million in profits from its Rio Olympics coverage of 2016.

Comcast is investing heavily in its theme park business. The company has forayed into the over-the-top video delivery market with the launch of its Internet TV service "Stream" and aims to check customer churn and provide viewers with more streaming options and flexibility at breakthrough prices. The company is also eyeing Annapolis for its fibre network business wherein it plans to launch 100 Gigabit Ethernet (GigE) services in the city. Comcast recently announced a new Internet of Things (IoT) platform - machineQ.

The company plans to launch its own wireless service in mid-2017 and will be using its Wi-Fi hotspots to expand the network. Comcast's services will be based on Verizon Communication Inc.'s VZ wireless network when not connected to Wi-Fi. Comcast is also making great progress in rolling out X1 services to new and existing customers and also has plans to integrate Netflix Inc. NFLX into its X1 platform. The company has also started deploying fiber-based 2 gigabits per second (2 Gbps) residential broadband Internet services in certain regions.

However, intensifying competitive threat, consolidation-related woes, mounting programming costs and a highly leveraged balance sheet are potent headwinds. Quarterly operating costs and expenses totaled $12,814 million in the second quarter of 2016, up 2.7% year over year which implies a rise in the rate of programming expenses in 2016. Moreover, loss of NBC Universal's programming distribution agreements, or the renewal of these agreements on less favorable terms, could affect its businesses.

Earnings Whispers

Our proven model does not conclusively show that Comcast 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, that is not the case here as elaborated below.

Zacks ESP: Comcast has an earnings ESP of -1.09%. This is because the Most Accurate estimate stands at 91 cents while the Zacks Consensus Estimate is pegged higher at 92 cents.

Zacks Rank: Comcast has a Zacks Rank #3 which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

COMCAST CORP A Price and EPS Surprise

COMCAST CORP A Price and EPS Surprise | COMCAST CORP A Quote

Stock to Consider

Here's a company that has the right combination of elements to post an earnings beat this quarter.

Apple Inc. AAPL , with an earnings ESP of +1.21% and a Zacks Rank #2.You can see the complete list of today's Zacks #1 Rank stocks here. The company's earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters.

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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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