Electronic Arts Inc. (EA - Free Report) is set to report second-quarter fiscal 2017 results on Nov 1. In the previous quarter, the company reported a positive earnings surprise of 42.86%. On an average, EA has delivered a positive earnings surprise of 32.22% in the last four quarters.
Let’s see how things are shaping up for this quarter.
Factors at Play
We believe that EA’s popular franchises, and strength in digital business, especially mobile, are key growth catalysts. Moreover, cost optimization initiatives will be beneficial going forward.
Last quarter, continued increases in digital revenues and strength in titles like FIFA Ultimate Team, and mobile games like Star Wars: Galaxy of Heroes and NBA Live were the driving factors.
For the second quarter, the company expects GAAP revenues of $915 million. The top line will be dampened due to a change in deferred revenues to the tune of $160 million. Also, FIFA 17 released just four days before the second quarter ended, so most of the benefit to digital revenues will be realized in the current quarter. The company projected GAAP loss per share of 17 cents.
However, hit driven nature of video game industry and stiff competition from other game makers such as Activision (ATVI - Free Report) and Glu Mobile Inc. (GLUU - Free Report) remains concerns.
Our proven model does not conclusively show that Electronic Arts is likely to beat estimates 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: Electronic Arts has an Earnings ESP of -6.90%. This is because both the Most Accurate estimate stands at 27 cents whereas the Zacks Consensus Estimate stands at 29 cents.Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: Electronic Arts has a Zacks Rank #2, which when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter:
Stratasys Ltd. (SSYS - Free Report) with an Earnings ESP of +41.67% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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