Key Predictions for Q3 Earnings Reports of CBS & DISCA – November 1, 2017

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The Q3 earnings season is moving full steam ahead with multiple reports lined up for release this week. Per our Earnings Outlook report as of Oct 27, out of the 272 S&P 500 companies that have come up with their quarterly numbers, approximately 75.7% posted positive earnings surprises, while 66.2% beat top-line expectations.

According to the report, earnings for the 272 S&P 500 companies that have reported so far are up 8.7% from the same period last year, while revenues have increased 6.7%. Further, the report projects that earnings for the total S&P 500 companies will improve 5.4% from the year-ago period with total revenues rising 5.5%.

Let’s Take a Glance at Consumer Discretionary Sector

However, in the thick of the Q3 earnings season, the widely diversified Consumer Discretionary sector is likely to witness mixed results. Total earnings of the sector are likely to decline 1.1%, while revenues are estimated to increase 2.8% year over year. Notably, broadcasting stocks form part of the Consumer Discretionary sector.

Turning our focus to the Broadcasting Radio and Television industry, we note that only a few players have reported results so far. Among the broadcasting radio stocks which have reported their quarterly numbers, Netflix, Inc. (NFLX Free Report) posted mixed results, wherein earnings missed the Zacks Consensus Estimate but revenues beat the same. Meanwhile, SIRIUS XM Holdings Inc.’s (SIRI Free Report) has surpassed both top and bottom-line estimates in the third quarter.

Let’s take a sneak peek at two broadcasting stocks lined up to report third-quarter 2017 results on Nov 2.

CBS Corporation (CBS Free Report) is slated to report results, after the closing bell. The question lingering in investors’ minds now is whether CBS will be able to post positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is $1.10, reflecting a year-over-year increase of nearly 5% and approximately 6% sequentially. Meanwhile, analysts polled by Zacks expect revenues of $3,295 million down from $3,396 million reported in the prior-year quarter. However, the consensus estimate portrays sequential growth of 1.2%.

From the above discussion, it is apparent that CBS top-line is expected to decline 3% year over year in the third quarter. We believe that this might be due to fall in revenues from advertising sales and content group. Analysts surveyed by Zacks expect adverting revenues to be $1,123 million, down 23.6% year over year.

CBS remains highly vulnerable to the advertising market, as it derives a major portion of revenues from the sale of advertising on its broadcast as well as cable networks and television, syndicated programming, and online properties. Notably, broadcast TV is losing ground to the internet and digital media. Consequently, analysts remain concerned about the company’s broadcast TV performance, which is a major revenue and profit contributor.

Nevertheless, the company’s sustained focus on increasing subscription-based revenues is likely to drive long-term growth. In the third quarter, analysts surveyed by Zacks expect revenues from affiliate and subscription fees to increase by more than 27% year over year. (Read more: Factors Setting the Tone for CBS Corp in Q3 Earnings)

CBS Corporation carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -2.12%, consequently making the surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Discovery Communications, Inc. (DISCA Free Report) is scheduled to report its quarterly numbers, before the opening bell.

Discovery’s joint venture with The Enthusiast Network (“TEN”) in August for automotive media is likely to aid results in the third quarter. This move marks the company’s entry into direct-to-consumer offerings. Discovery will take a majority controlling interest in the new venture with options to acquire 100% of its business.

Notably, Discovery has inked multiple deals to expand presence. In September, the company renewed distribution partnership with AT&T. The long-term carriage deal is aimed at expanding portfolio of networks across more platforms. Following the renewal, the company’s networks are available on all platforms of DirecTV. Moreover, this strategy is expected to fuel results in the soon-to-be-reported quarter.

We believe these efforts will certainly help the company to report year-over-year increase in both the top and bottom lines in the third quarter. The current Zacks Consensus Estimate for the quarter under review is 55 cents, reflecting a year-over-year increase of nearly 53%. Meanwhile, analysts polled by Zacks expect revenues of $1,637 million up from $1,556 million reported in the prior-year quarter.

Meanwhile, advertising revenues which witnessed a decline of nearly 1% year over year in the preceding quarter is likely to witness a gain of 3.4% in the third quarter owing to gain in international advertising revenues. Moreover, the consensus estimate for revenues from the U.S. Networks division is pegged at $817 million, up 3% year over year. (Read more: Can Discovery Deliver a Beat This Earnings Season?)

Discovery has an Earnings ESP of +0.46%. The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

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