Can Comcast (CMCSA) Deliver A Beat This Earnings Season?

Comcast Corp. (NASDAQ:CMCSA) , the leading cable multi-service operator (MSO) in the U.S., is slated to report second-quarter 2017 results on Jul 27, before the opening bell.

In the last four quarters, Comcast’s bottom line matched the Zacks Consensus Estimate thrice and surpassed only once in the year-ago quarter. The average beat is 5.11%.

Meanwhile, shares of Comcast have witnessed a gain of 2.96% in the past three months, outshining the industry’s decline of 0.74%.

Let’s see how things are shaping up for this announcement.

Why Do We Expect a Positive Surprise?

Our proven model shows that Comcast is likely to beat estimates because it has the right combination of the two key elements.

Zacks ESP: Comcast has an Earnings ESP of +2.08%. This is because the Most Accurate estimate stands at 49 cents while the Zacks Consensus Estimate is pegged at 48 cents. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Comcast has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of the company’s favorable Zacks Rank and positive ESP makes us confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

Comcast has forayed into the over-the-top video delivery market with the launch of its Internet TV service, Stream. We believe that this will aid the company check customer churn and provide viewers with more streaming options and flexibility at competitive prices. Further, Comcast’s Cable business is doing well and the NBC Universal segment is witnessing significant improvement. The improvement is evident from the revenue earned in the last-reported quarter. Notably, Cable Communications Segment’s total revenue amounted to $12,912 million, up 5.8% rise year over year. NBC Universal Segment’stotal revenue was $7,868 million, up 14.7% year over year. We expect to witness the same in the second quarter of 2017.

Comcast's decision to venture into the U.S. wireless space in collaboration with Charter Communications Inc. (NASDAQ:CHTR) bodes well for its diversified business model. The company also expanded its theme park business through the purchase of the remaining 49% stake in Osaka-based Universal Studios Japan (USJ), for $2.3 billion. We believe that this should help witness revenue growth in its Theme Parks business.

Further, the company continues to strengthen its foothold in the Internet-of-Things (IoT) space and also in the lucrative digital media market through different deals.

However, intense competition, consolidation-related woes, lawsuits and their related fines and a highly leveraged balance sheet remain headwinds to the upcoming results of Comcast.

Online streaming service providers such as Netflix Inc. (NASDAQ:NFLX) , Hulu.com, YouTube etc. pose severe competitive threat because of their cheap source of TV programming. Loss against TiVo Corp (NASDAQ:TIVO) over a patent licensing dispute is a major setback.

Another major concern for Comcast is its spiraling programming expenses. Operating costs and expenses totaled $13,431 million, climbing 8.1% year over year in the last reported first quarter of 2017. We look forward to seeing how far the company succeeds in reducing its expenses in the to-be reported quarter.

Key Pick

Here’s a company in the broader Consumer and Discretionary sector — which houses Comcast — with the right combination of elements to post an earnings beat this quarter.

Penn National Gaming, Inc. (NASDAQ:PENN) is set to release second-quarter 2017 results on Jul 27. The company has an Earnings ESP of +8.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s earnings surpassed the Zacks Consensus Estimate in all the previous four quarters, with an average beat of 114.19%.

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