What's In The Offing For Discovery (DISCA) In Q1 Earnings?

Discovery (NASDAQ:DISCA) is scheduled to report first-quarter 2018 results on May 8.

In the last reported quarter, the company delivered a positive earnings surprise of 20.51%. Revenues of $1.86 billion outpaced the Zacks Consensus Estimate of $1.78 billion and improved 11.5% year over year.

The Zacks Consensus Estimate for first-quarter earnings has remained steady at 46 cents per share over the last seven days, reflecting year-over-year growth of 24.3%. The consensus mark for revenues currently stands at $2.33 billion, reflecting year-over-year growth of almost 44.6%.

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

U.S. & International Network Top-line to Grow

Discovery is expected to benefit from the completion of the Scripps Networks Interactive (NASDAQ:SNI) acquisition deal during the first quarter. The combined entity is likely to produce around 8,000 hours of original programming content on a yearly basis, reaching fans across 220 countries and territories in 50 different languages.

Moreover, the combined entity is anticipated to generate 7 billion short-form video streams per month, expanding its presence across new video and social media platforms.

Post Scripps Networks’ addition Discovery is expected to have nearly 20% of ad-supported pay-TV audiences’ share in the United States.

The U.S. Networks division is projected to perform well in the first quarter, consequently driving top-line growth. The Zacks Consensus Estimate for U.S. Networks revenues is pegged at $1.44 billion, much higher than $829 million reported in the year-ago quarter.

Scripps Networks’ acquisition widens Discovery’s international footprint, providing the audience with a varied range of Scripps’ brands, programming feed and talent.

Scripps Networks’ strong position in international markets like the U.K. and Poland will aid Discovery’s existing content pipeline.

The International Networks division is also expected to put on a robust performance. The Zacks Consensus Estimate currently stands at $1.07 billion, much higher than $747 million reported in the year-ago quarter.

Moreover, robust performance is anticipated from Oprah Winfrey Network (“OWN”), in which Discovery has a majority stake.

Cost Synergies to Drive Profitability

Scripps Networks’ acquisition is anticipated to be accretive to the combined entity’s adjusted earnings in the first year itself.

The transaction is also expected to cost synergies of approximately $350 million.

The Zacks Consensus Estimate for adjusted OIBDA-U.S. Networks is pegged at $670 million, much higher than $501 million delivered in the year-ago quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

We believe that Discovery is likely to deliver a positive earnings surprise in the first quarter due to a favorable combination of a Zacks Rank #3 and an Earnings ESP of +0.39%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are some stocks that you may want to consider as our model shows these too have the right combination of elements to deliver an earnings beat in its upcoming release.

Tribune Media (NYSE:TRCO) has an Earnings ESP of +275% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren (NYSE:RL) has an Earnings ESP of +2.92% and a Zacks Rank #2.

Michael Kors (NYSE:KORS) has an Earnings ESP of +6.82% and a Zacks Rank #2.

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