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4 Media Stocks Set for Blockbuster Earnings in Q2

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The media industry is witnessing a sea change on rapid evolution of distribution platforms as well as entrance of players and the newest technologies. Moreover, consumer’s unfavorable disposition, particularly toward advertising, has hit media companies hard.

Growing consumer preference for digital and subscription services instead of linear pay television and rental or outright purchase has also compelled media companies to alter their business models.

Additionally, increasing consumer demand for ‘on-demand content’ has led to increasing proliferation of streaming service providers like Netflix, Hulu, HBO and Amazon Prime. This has made it particularly difficult for traditional media companies to maintain a viewer base.

Media companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. They are also innovating in terms of original content to remain competitive against streaming service providers.

Factors to Give Thought to

The media industry has gained from strong political spending in first-half 2018. This is reflected in the solid performance of the Invesco Dynamic Media ETF (PBS) that has returned 15.8% on a year-to-date basis as compared with the S&P 500 Composite’s gain of 6.9%.

The midterm elections in 2018 will not only decide the future of Donald Trump’s Presidency but also shape the political landscape. As a series of contests are scheduled for November, momentum in political spending is expected to remain strong.

However, weakness in auto, which is a major ad category, isn’t happy news for the industry. Moreover, the industry is facing significant regulatory activity related to mergers & acquisitions that can thwart growth.

Nevertheless, increasing investments on original content and focus on providing quality entertainment bode well for media companies in the near term. Further, improving broadband ecosystem in the international markets along with proliferation of smart TVs is anticipated to drive growth.

Making the Right Pick

The existence of a number of industry players makes it difficult to pick the right media stocks that have the potential to beat earnings. Our proprietary methodology, however, makes it fairly simple.

You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Our Choices

Given below are four media stocks that have the right combination of elements to post an earnings beat this quarter:

Los Gatos, CA-based Roku (ROKU - Free Report) is expected to report second-quarter 2018 results on Aug 8. Currently, the company has an Earnings ESP of +10.00% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is likely to benefit from growing adoption of its ad-supported, video-on-demand channel. Moreover, increasing customer base, new launch and improving search volumes bode well for the stock.

Hunt Valley, MD-basedSinclair Broadcast Group (SBGI - Free Report) is currently under pressure due to headwinds related to the Tribune merger. However, the company is expected to benefit from strong political ad spending.

This Zacks Rank #3 stock has an Earnings ESP of +3.70%. The company is expected to report second-quarter 2018 results on Aug 8.

Greenwich, CT-basedTownsquare Media (TSQ - Free Report) is anticipated to benefit from its focus on core local operations post the divestiture of NAME.

This Zacks Rank #3 company has an Earnings ESP of +7.69%. The company is set to report second-quarter 2018 results on Aug 8.

New York-basedViacom currently has a Zacks Rank #3 and an Earnings ESP of +0.40%.

We believe new original programming content, greater carriage benefits from improved distributor penetration and higher contribution from digital initiatives are key catalysts. Moreover, Viacom is likely to benefit from robust performance on the international front.

The company is set to report second-quarter 2018 results on Aug 8.

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Sinclair, Inc. (SBGI) - free report >>

Townsquare Media, Inc. (TSQ) - free report >>

Roku, Inc. (ROKU) - free report >>