Will Electronic Arts (EA) Beat Q1 Earnings Estimates?

Electronic Arts Inc. EA is set to report first-quarter fiscal 2015 results on Jul 22, 2014. In the previous quarter, the company reported earnings of 35 cents, which was much better than the Zacks Consensus Estimate of 3 cents. On an average, EA has delivered positive earnings surprise of 562.26% in the last four quarters.

Let's see how things are shaping up for this quarter.

Growth Factors in the Past Quarter

EA is expected to benefit from its strong product pipeline in the quarter. Strong sales from Titanfall and the launch of Plants vs Zombies Garden Warfare for PCs, EA SPORTS UFC for Xbox One and PS4 and free-to-play EA SPORTS FIFA Ultimate Team: FIFA World Cup will drive top-line growth.

However, higher spending on new consoles is expected to negatively impact software sales. Moreover, stiff competition from Activision, Take-Two, Zynga, King Digital and Glu Mobile are expected to keep margins under pressure.

For the first quarter of fiscal 2015, EA expects to generate non-GAAP revenues of approximately $700.0 million. The company expects non-GAAP loss to be 5 cents per share. Non-GAAP gross margin is expected to be 67.0%. Non-GAAP operating expense is expected to be $485.0 million, $8.0 million higher than the year-ago quarter.

Earnings Whispers?

Our proven model does not conclusively show that EA is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: EA currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 13 cents.

Zacks Rank: EA has a Zacks Rank #1 (Strong Buy), which when combined with a 0.00% ESP, makes surprise prediction difficult.

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

Other Stocks to Consider

Here are a couple of stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Silicon Motion SIMO, with an Earnings ESP of +33.33% and a Zacks Rank #1.

Synaptics SYNA, with an Earnings ESP of +0.81% and a Zacks Rank #1.

F5 Networks FFIV, with an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy).