DIRECTV (DTV - Analyst Report),one of the largest U.S. satellite TV operators, is scheduled to report its second-quarter 2014 financial numbers before the opening bell on July 31.
Why a Likely Positive Surprise?
Our proven model shows that DIRECTV is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.6%. This is because the Most Accurate estimate stands at $1.56, whereas the Zacks Consensus Estimate is pegged at $1.52. This serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: DIRECTV currently has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings.Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of DIRECTV’s Zacks Rank #3 and +2.6% ESP makes us reasonably confident in looking for a positive earnings beat on July 31.
What is Driving the Better-Than-Expected Earnings?
DIRECTV has improved its subscriber quality by shrinking the proportion of subscribers with low credit ratings. With a high-quality subscriber base, DIRECTV has now implemented programming package price increases, and higher HD and DVR equipment service and lease fees in the U.S., driving higher ARPU. This is also helping the company expand its margin.
Slow-paced growth in the Latin American region is a major concern for DIRECTV. In the previous quarter, DIRECTV added 361,000 subscribers against 583,000 in the year-ago period, mainly attributable to stringent credit measures and lower promotional schemes.
Other Stocks to Consider
Here are other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
TIM Participacoes S.A. (TSU - Snapshot Report), with earnings ESP of +16.7% and a Zacks Rank #1.
Time Warner Inc. (TWX - Analyst Report), with earnings ESP of +1.2% and a Zacks Rank #3.
ViaSat Inc. (VSAT - Snapshot Report), with earnings ESP of +375% and a Zacks Rank #3.