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Media Stocks' Earnings Lineup for Aug 7: GTN, TGNA & DIS

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We are now at the business end of second-quarter 2018 earnings season as 381 S&P 500 members — 81.2% of the index’s total market capitalization — have reported their quarterly numbers.

Per the latest Earnings Preview, total earnings of these companies are up 25% on a year-over-year basis (80.1% beat EPS estimates) and total revenues have risen 10.4% (73.8% beat top-line estimates).

Overall second-quarter earnings for S&P 500 companies are anticipated to be up 23.9% from the year-ago quarter on a revenue increase of 9.3%. Growth is expected to be broad-based, with double-digit earnings improvement expected from 14 of the 16 Zacks Sectors, including Consumer Discretionary.

Strong Political Ad Demand to Negate Cord-Cutting

Media forms a significant part of the Consumer Discretionary sector. The industry has been grappling with persistent cord-cutting and stiff competition from streaming services like Netflix, Hulu, HBO and Amazon Prime.

Nevertheless, strong demand for political advertising is likely to drive media industry results. However, weakness in auto, which is a major ad category, sets a somber tone. Moreover, the industry is fettered by stringent regulatory requirements related to mergers and acquisitions.

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

Let us take a look at three media companies that are set to report on Aug 7.

Atlanta, GA-based Gray Television (GTN - Free Report) owns and operates television stations and leading digital assets throughout the United States. As of Feb 23, 2018, the company owned and operated television stations in 57 television markets broadcasting over 200 separate programming streams.

Strong pickup in political advertising is likely to boost Gray’s second-quarter results. The Zacks Consensus Estimates for revenues is currently pegged at $252.1 million, reflecting year-over-year growth of 11.2%.

Moreover, Gray has a favorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of +0.61%, which shows that the company is likely to deliver a positive surprise this earnings season.

Gray Television, Inc. Price and EPS Surprise

 

Gray Television, Inc. Price and EPS Surprise | Gray Television, Inc. Quote

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

You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, Gray and privately-held Raycom Media have entered into an agreement to merge their businesses that will form the third-largest television broadcast group in the United States. The transaction is likely to close in the fourth quarter.

TEGNA (TGNA - Free Report) is also likely to deliver a positive earnings surprise in the second quarter as it has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +4.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

TEGNA’s strong content portfolio is a key positive. Currently, it is the largest independent television station group of major network affiliates in the top 25 markets. Being more focused on content creation rather than TV broadcasting, the media division shields the company from the prevailing cord-cutting threats in the pay-TV industry.

However, the company’s results are anticipated to be negatively impacted by intensifying competition in the broadcast TV industry along with declining advertising revenues.

TEGNA Inc. Price and EPS Surprise

 

TEGNA Inc. Price and EPS Surprise | TEGNA Inc. Quote

The Zacks Consensus Estimate for second-quarter 2018 earnings is currently pegged at 35 cents. The figure, which reflects a 20.7% year-over-year growth, has remained unchanged over the past seven days.

Meanwhile, Disney’s (DIS - Free Report) third-quarter fiscal 2018 results are likely to benefit from strong attendance at Parks & Resorts and robust collections from Black Panther, Avengers: Infinity War and Incredibles 2.

The media giant’s continuing investment in Parks & Resorts (33.5% of second-quarter revenues) is reaping benefits. The company’s strategy of better-load balancing of attendance throughout the year is driving the visitor growth rate.

Moreover, the stupendous success of Avengers: Infinity War is likely to reflect in Studio Entertainment’s (16.9% of second-quarter revenues) third-quarter revenues.

Nevertheless, a contracting subscriber base and escalating programming costs at ESPN are major concerns. (Read more: Will Disney Fail to Cheer Investors in Q3 Earnings?)

The Walt Disney Company Price and EPS Surprise

 

The Walt Disney Company Price and EPS Surprise | The Walt Disney Company Quote

Moreover, Disney’s unfavorable combination of a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00% indicates slim chances of a positive surprise.

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