Scientific Games (SGMS) Q1 Earnings: Will It Surprise?

Scientific Games Corporation (NASDAQ:SGMS) is expected to report first-quarter 2016 results on May 5. Last quarter, it posted a positive earnings surprise of 58.97%. Scientific Games has posted positive earnings surprises in the trailing four quarters, resulting in an average positive earnings surprise of 34.13%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Scientific Games holds a premium position in the gaming equipment space. Furthermore, the company has been witnessing improvement in its organic business and strength in the replacement market. This when combined with a robust product line and a recovering financial position are significant positives. Also, we are optimistic about the company’s ongoing cost cutting initiatives.

Bally Technologies and WMS Industries acquisitions are positives for the company as they diversify its product portfolio and expand its global footprint. The acquisition of Bally Technologies eliminates one of the nearest competitors and will therefore help it to expand its market share.

However, the acquisitions put Scientific Games’ balance sheet under pressure as the company opted for debt financing for the buyout. Further, significant competition continues to be a major concern.

Earnings Whispers

Our proven model does not conclusively show that Scientific Games is likely to beat earnings 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. That is not the case here as you will see below.

Zacks ESP: Scientific Games 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 $1.01.

Zacks Rank: Scientific Games’ Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

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.

Stocks to Consider

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

Enable Midstream Partners, LP (NYSE:ENBL) has an Earnings ESP of +21.05% and a Zacks Rank #2.

Spectra Energy (NYSE:SE) Partners, LP (NYSE:SEP) has an Earnings ESP of +2.27% and a Zacks Rank #3.

American Midstream Partners, LP (NYSE:AMID) has an Earnings ESP of +22.73% and a Zacks Rank #3.