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Calif.-based personalized photo services company Shutterfly Inc. (SFLY - Analyst Report) is scheduled to report third quarter 2013 earnings on Oct 29, 2013. Last quarter, Shutterfly posted a positive earnings surprise of 46.3%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Shutterfly is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.61%. This is meaningful and a leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #2 (Buy): Shutterfly carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings estimates. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of Shutterfly’s Zacks Rank #2 (Buy) and a positive ESP of +1.61% makes us confident of an earnings beat on Oct 29.

What is Driving the Better-than-Expected Earnings?

Shutterfly is focused on growing its business through strategic partnerships with retailers and through acquisitions. Some of Shutterfly’s acquisitions so far this year include R&R Images -- engaged in premium stationery printing and product design – in Aug 2013, MyPublisher, one of the pioneers in the photo book industry in May 2013; and ThisLife, which offers a cloud-based solution for protecting, organizing and sharing photos and videos in Jan 2013. We expect these acquisitions to benefit the company ahead.

Shutterfly’s customer base has expanded significantly this year. Improved offerings in the growing mobile e-commerce segment, strategic partnerships with retailers and efforts to develop a successful commercial printing business are contributing to the company’s growth. Its average order value has also been going up thanks to its promotional and pricing strategies and a wide range of premium services. We expect this trend to boost third quarter sales too.

Other Stocks to Consider

Here are some other companies in the Internet content industry that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

WebMD Health Corp. (WBMD - Snapshot Report), Earnings ESP of +66.67% and a Zacks Rank #1 (Strong Buy).

Facebook Inc. (FB - Analyst Report), Earnings ESP of +7.69% and a Zacks Rank #2 (Buy).

Casino gaming company MGM Resorts International (MGM - Analyst Report), with Earnings ESP of + 100.0% and a Zacks Rank #3 (Hold) is also likely to beat estimates.

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