Media companies’ fourth-quarter results are expected to benefit from strong spending on political advertising in the United States related to mid-term elections.
Moreover, growing demand for virtual multichannel video programming distributor (vMVPD) services or “skinny bundles” is a key catalyst. These services, which are available through the Internet, often contain fewer channels than a traditional subscription, and therefore are cheaper than traditional offerings.
Further, the “skinny bundles” well supported by quality content are expected to improve churn rates of media companies, thereby driving top-line growth.
However, increasing programming costs and retransmission fees are expected to drag down profits.
Industry Trends to Drive Growth
Media companies are expected to gain from a number of favorable industry trends. The industry is witnessing rapid evolution in alternative distribution channels for broadcast and cable programming. Growing preference for digital and subscription services in place of linear pay television and rental or outright purchase has compelled media companies to alter their business models.
Furthermore, industry participants are investing heavily to develop original and fresh content to keep pace with streaming service providers like Netflix (NFLX - Free Report) . They are now offering a variety of alternative packages at lower cost than traditional offerings to gain subscribers.
Additionally, growing demand for high-speed Internet is a major positive. Improving Internet speed is driving demand for high-quality video and the trend of binge viewing is spreading fast.
How to Make the Right Pick?
The existence of a number of industry players makes it difficult to decide on 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.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Given below are three media stocks that have the perfect combination of elements to come up with an earnings beat this quarter:
Stamford, CT-based Charter Communications (CHTR - Free Report) is set to report fourth-quarter 2018 results on Jan 31. Currently, the company has an Earnings ESP of +0.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Charter is expected to benefit from an expanding Internet subscriber base. Strong demand for high-speed data is a key catalyst. Moreover, an improved network along with continuing expansion of the Spectrum Internet Gig service is expected to boost user engagement.
Notably, Charter has beaten the Zacks Consensus Estimate in the trailing four quarters, the positive average earnings surprise being almost 46.1%.
Rogers Communications (RCI - Free Report) is set to report fourth-quarter 2018 results on Jan 24. This Toronto, Canada-based company has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +1.44%.
The company continues to expand LTE coverage that is expected to increase subscriber base and improve churn rate. Further, integration of Ignite TV with streaming services like Netflix, YouTube and Amazon Prime is expected to offset decline in its traditional video subscriber base.
Notably, Rogers has beaten the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being around 7.6%.
Los Gatos, CA-based Roku (ROKU - Free Report) is expected to report fourth-quarter 2018 results on Feb 20. Currently, the company has an Earnings ESP of +16.67% and a Zacks Rank #3.
The company is expected to benefit from growing adoption of ad-supported, video-on-demand channel. Per the preliminary disclosure, the company estimates active accounts to hit 27 million in the fourth quarter, up 40% year over year. Moreover, streaming hours jumped 68% from the year-ago quarter to 7.3 billion hours.
Notably, Roku has beaten the Zacks Consensus Estimate in the trailing four quarters, the average positive earnings surprise being almost 85.4%.
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