Media Stock Q3 Earnings On Tap: Comcast, Charter, Shaw, Time Warner

The third-quarter 2017 earnings seasons is picking pace with 87 S&P 500 members having reported results as of Oct 20, accounting for 24.7% of the index's total market capitalization (based on the latest Earnings Preview). Total earnings for these companies are up 9.4% from the same period last year on 7.3% higher revenues, with 71.3% beating EPS estimates and 70.1% surpassing revenue estimates.

More than 700 companies are scheduled to release results this week, including 180 S&P 500 members. We can conclude that the third-quarter earnings season is off to a good start.

In such a scenario, let's take a look at the media industry wherein four major media companies — Comcast Corp CMCSA, Charter Communications Inc CHTR, Shaw Communications Inc SJR and Time Warner Inc TWX — are set to release third-quarter 2017 financial numbers on Oct 26, before the market opens.

What Will Q3 Unfold for Media Industry?

As per the Zacks Industry classification, the Media Industry is grouped under the broader Consumer Discretionary sector (one of the 16 Zacks sectors).

The trend in the media industry has been improving over the past year, in terms of fiscal performance. From third-quarter 2016 till the beginning of second-quarter 2017, the media industry has been faring well. Second-quarter 2017 was disappointing and the quarter under review is projecting declining trends. The downward movement can be attributed to increasing competition from online video streaming service providers and declining advertising revenues.

Cord cutting has become a major threat to the entire media industry, apart from intense competition and a saturated multi-channel video market in the United States. Companies are losing video subscribers to online video streaming service providers such as Netflix Inc NFLX, Hulu.com, YouTube etc. because of their cheap source of TV programming. As per a FierceCable report, traditional pay-TV services, including cable and satellite, lost 976,000 customers in second-quarter 2017 due to cord cutting. 

Comcast lost 34,000 video customers and 22,000 voice customers, while Charter Communications lost 90,000 video customers. DISH Network lost 196,000 pay-TV subscribers in the said quarter. The trajectory of subscriber losses signifies an unprecedented annual decline.

Revenues from advertisement are a major source of income for media companies. Advertising depends on the health of the economy. It has been witnessed that demand for advertising drops during recession. In second-quarter 2017, Advertising revenues of Comcast declined 2.1% year over year to $574 million, while that of Charter Communications declined 5.8% year over year to $381 million.

Accordingly, the highly diversified Consumer Discretionary sector displays a gloomy picture with declining earnings projection for Q3 to the tune of 1.7% year over year as against 4.7% growth in 2Q17. The estimated growth in revenues is pegged at 2.9% compared with growth of 8.8% in the second quarter of 2017.

Notably, the third quarter of any year is known for weak seasonality in the media industry.

With such mixed prospects and strategic business ideas, the media industry has returned 9.8% outperforming the S&P 500's rally of 20.8%, over the past year.

Media Stocks to Release Q3 Earnings on Oct 26

Our quantitative model offers some insight into stocks that are about to report their earnings. Per the model, a stock needs to have the right combination of the two key ingredients, a positive Earnings ESP and a Zacks Rank #3 (Hold) or better, to deliver earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

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

Investors interested in media stocks can watch out for the four companies that are scheduled to report their third-quarter 2017 numbers on Oct 26, before the market opens.

Comcast, headquartered in Pennsylvania, is one of the leading cable multi-service operators MSO in the United States.

The company has an Earnings ESP of +1.95% because the Most Accurate estimate is pegged at 50 cents, higher than the Zacks Consensus Estimate of 49 cents. A favorable Earnings ESP indicates a positive earnings surprise.

Further, in the 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%.

Moreover, Comcast currently has a Zacks Rank #3, which increases the predictive power of the ESP. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Comcast Corporation Price and EPS Surprise

 

Comcast Corporation Price and EPS Surprise | Comcast Corporation Quote

Notably, a positive Earnings ESP along with a Zacks Rank #3, makes us confident of an earnings beat in the to-be-reported quarter (read more: Is a Beat in Store for Comcast This Earnings Season?).

Charter Communications, headquartered in Connecticut, is a leading broadband communications company and the second-largest cable operator in the United States.

Charter Communications has an Earnings ESP of +5.37%. This is because the Most Accurate estimate is at $1.09, while the Zacks Consensus Estimate is pegged at $1.04.

However, in the last quarter, the company delivered a negative earnings surprise of 35.80%. The company's earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 23.47%.

Despite a positive Earnings ESP, the company's Zacks Rank #4 dims the possibility of an earnings beat in the to-be reported quarter. (Read more: Charter Communications Q3 Earnings: What's in Store?)

Charter Communications, Inc. Price and EPS Surprise

 

Charter Communications, Inc. Price and EPS Surprise | Charter Communications, Inc. Quote

 

Shaw Communications, headquartered in Calgary, is a Canadian telecommunications company which provides telephone, Internet, television and mobile services, backed by a fibre optic network.

Shaw Communications' bottom line met the Zacks Consensus Estimate in the last two quarters and lagged the same in the remaining two of the previous four quarters, with an average miss of 11.96%.

The company has a Zacks Rank #5 and an Earnings ESP of 0.00% (as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 23 cents).

Notably, with a negative earnings surprise history, a Zacks Rank #5 and 0.00% Earnings ESP, our proven model does not conclusively show that Shaw Communications is likely to beat the Zacks Consensus Estimate this quarter. (Read more: Shaw Communications Q4 Earnings: What's in Store?)

Shaw Communications Inc. Price and EPS Surprise

 

Shaw Communications Inc. Price and EPS Surprise | Shaw Communications Inc. Quote

Time Warner, headquartered in New York, is one of the world's leading mass media and entertainment companies, which has businesses that include filmed entertainment, interactive services, television networks, cable systems, publishing and music.

The company displays a positive earnings surprise history, beating the Zacks Consensus Estimate in all of the last four quarters at an average of 16.66%. Moreover, the company has an Earnings ESP of +5.23%. This is because the Most Accurate estimate is at $1.61, while the Zacks Consensus Estimate is pegged at $1.53.

However, Time Warner's Zacks Rank #4 makes surprise prediction difficult despite a positive ESP. (Read more: Factors Influencing Time Warner's Fate in Q3 Earnings)

Time Warner Inc. Price and EPS Surprise

 

Time Warner Inc. Price and EPS Surprise | Time Warner Inc. Quote

Irrespective of an earnings beat or miss, investors should focus on companies' fundamentals to make investment decisions. Therefore, don't forget to check our full write up on earnings releases of these stocks later.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Time Warner Inc. TWX: Free Stock Analysis Report
 
Netflix, Inc. NFLX: Free Stock Analysis Report
 
Shaw Communications Inc. SJR: Free Stock Analysis Report
 
Comcast Corporation CMCSA: Free Stock Analysis Report
 
Charter Communications, Inc. CHTR: Free Stock Analysis Report
 
To read this article on Zacks.com click here.