Electronic Arts Inc.EA is set to report fourth-quarter fiscal 2016 results on May 10. In the previous quarter, the company reported a positive earnings surprise of 1.76%. On an average, EA has delivered a positive earnings surprise of 65.83% in the last four quarters.
Let's see how things are shaping up for this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Electronic Arts is likely to beat estimates because it has the right combination of two key ingredients. 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. The combination of Electronic Arts' Zacks Rank #3 and Earnings ESP of +6.67% makes us confident in looking for an earnings beat this quarter.
Factors at Play
We believe that EA's strong games portfolio, strength in new consoles and continuing growth in the mobile market are key growth catalysts. Moreover, strong growth in digital sales coupled with cost optimization initiatives will be beneficial going forward.
Last quarter, the company witnessed solid revenue gains in its Digital division driven by the success of Star Wars. In the to-be-reported quarter, the new titles that are likely to drive sales include Unravel, Plants Vs Zombies: Garden Warfare 2 and EA SPORTS UFC 2.
This apart, the company seems well positioned to benefit from the business transition that was undertaken to meet the needs of the evolving video game market.
However, the company faces a number of headwinds that include significant competition from other game makers such as Activision ATVI , Glu Mobile Inc. GLUU and others. Additionally, higher consumer spending on new consoles may cannibalize software sales in the near term.
In the fiscal fourth quarter, the company expects non-GAAP revenues of 875 million, a tad lower than the prior-year quarter revenues. The company projects non-GAAP earnings per share of 40 cents, a penny more than the prior-year quarter reported earnings.
Stock to Consider
Here is a stock, which you may consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:
Cinemark Holdings, Inc. CNK has an Earnings ESP of +2.13% and a Zacks Rank #2.