Scripps Networks (SNI) Q3 Earnings: Stock To Disappoint?

Scripps Networks Interactive, Inc. (NASDAQ:SNI) is scheduled to release third-quarter 2016 financial numbers, before the opening bell, on Nov 7.

In the second quarter of 2016, Scripps Networks posted a positive earnings surprise of 6.76%. In fact, the company boasts an impressive history with respect to earnings. Scripps Networks outpaced the Zacks Consensus Estimate in each of the last four quarters with an average earnings beat of 21.34%.

However, things do not look rosy for this Cincinnati, OH-based company in the third quarter. The negative sentiment surrounding the stock ahead of its third-quarter earnings release can be gauged by the 9.7% decrease in the Zacks Consensus Estimate over the last three months.

Our quantitative model too does not hint at an earnings beat in the third quarter as it lacks the perfect combination of two key ingredients.

Zacks ESP: The Earnings ESP for Scripps Networks is +1.08%. This is because the Most Accurate estimate is pegged at 94 cents while the Zacks Consensus Estimate stands at 93 cents per share .

Zacks Rank: Scripps Networks carries a Zacks Rank #4 (Sell). Please note that we advise investors against considering Sell-rated stocks going into an earnings announcement.

Conversely, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings estimates.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Factors Likely at Play

We expect the company’s third-quarter results to be hurt by headwinds like foreign exchange woes and escalating costs. We note that Scripps Networks reported lower-than-expected revenues in the second quarter. The unfavorable trend is expected to continue in the third quarter as well with the company’s top line declining in spite of strong advertising revenues.

Also, the company’s high debt levels raise concerns. The debt-to-capitalization ratio at the end of the second quarter stood at a high 0.57.

However, the company’s expansion efforts are impressive. In keeping with this, Scripps Networks inked a deal with AT&T (NYSE:T) in the third quarter. The recent deal with Tribune Media Company (NYSE:T) is also encouraging. Even though positive with Scripps Networks’ growth-by-acquisition strategy, we note that that the strategy has integration risks attached to it.

A Stock to Consider

While an earnings beat looks uncertain for Scripps Networks, here is a stock in the broader Consumer Discretionary sector you may want to consider on the basis of our model, which shows that it has the right combination of elements to post earnings beat this quarter.

Nexstar Broadcasting Group (NYSE:T) is scheduled to report third-quarter earnings on Nov 8. It has an earnings ESP of +3.49% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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