Scientific Games (SGMS) Q2 Earnings: What's In The Cards?

Scientific Games Corporation (NASDAQ:SGMS) is slated to report second-quarter 2017 results on Jul 24 before the opening bell. Last quarter, the company posted a negative earnings surprise of 24.32%. It has delivered negative earnings surprises in two of the trailing four quarters, resulting in an average negative earnings surprise of 2.99%.

However, we note that Scientific Games’ shares impressive gain of 161.2% in the last one year, vastly outperformed the industry's advance of 19.7%.

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

Factors to Consider

We believe that Scientific Games’ premium position in the gaming equipment space, along with the instant ticket and online lottery markets are significant catalysts. Further, the company’s innovative product lines and acquisition strategies also augur well. In Jun 2017, Scientific Games launched its first skill-based slot machine – Space Invaders – based on the popular classic arcade video game, and featured on the Blade s32 cabinet.

Moreover, the company continues to win significant contracts in both the instant ticket and online lottery markets from both domestic and international authorities. Notably last month, it won a new, eight-year systems technology and services contract from the Maryland Lottery and Gaming Control Agency (MLGCA).

Furthermore, the company continues to make strategic acquisitions that would accelerate top-line growth. In Apr 2017, Scientific Games acquired Spicerack Media, Inc. – creator of the successful Bingo Showdown social bingo mobile game app. Spicerack has complemented its stable of social casino games and mobile offerings.

However, increasing investments for product development and strong competition is anticipated to hurt profitability. Moreover, the acquisitions are putting Scientific Games’ balance sheet under pressure.

Scientific Games Corp Price and EPS Surprise

Scientific Games Corp Price and EPS Surprise | Scientific Games Corp Quote

Earnings Whispers

Our proven model does not conclusively show that Scientific Games is likely to beat earnings 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: Scientific Games has an Earnings ESP of -28.85%. This is because the Most Accurate estimate is pegged at a loss of 67 cents while the Zacks Consensus Estimate stands at a loss of 52 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Scientific Games carries a Zacks Rank #2 (Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:

CGI Group, Inc. (NYSE:GIB) with an Earnings ESP of +5.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank Stocks here.

IPG Photonics Corporation (NASDAQ:IPGP) with an Earnings ESP of +3.07% and a Zacks Rank #1.

CACI International, Inc. (NYSE:CACI) with an Earnings ESP of +1.83% and a Zacks Rank #2.

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