Time Warner (TWX) Q4 Earnings: Is A Beat In The Cards?

Time Warner Inc. (NYSE:TWX) , which accepted the buyout offer of AT&T (NYSE:T), Inc., is slated to report fourth-quarter 2017 results before the market opens on Feb 1. In the trailing four quarters, this media and entertainment company has outperformed the Zacks Consensus Estimate by an average of 11.8%. In the preceding quarter, the company delivered a positive earnings surprise of 15.2%.

Investors are keeping their fingers crossed and hoping that Time Warner surpasses earnings estimate even this time. Let’s delve deeper and find out the factors likely to impact the results.

How are Estimates Shaping Up?

After registering a marginal gain of 0.5% in the bottom line, Time Warner is likely to witness a sharp increase in year-over-year earnings in the fourth quarter. The current Zacks Consensus Estimate for the quarter under review is $1.45 up from $1.25 reported in the year-ago period. We note that the Zacks Consensus Estimate has been stable over the past 30 days.

Meanwhile, analysts polled by Zacks expect revenues of $8,460 million, up 7.2% from the year-ago quarter. We note that the rate of growth is likely to accelerate from 2.7% recorded in the preceding quarter.

Factors Influencing This Quarter

We believe that Time Warner’s foray into new markets, focus on original programming, cost reduction and increasing investments in key areas bode well. Additionally, the company has been expanding digital presence to enable consumers to access content from several platforms and devices. Its investments in video content and technology continue to drive results. All these initiatives are likely to be reflected in the quarter to be reported.

However, management expects Home Box Office (“HBO”) programming cost to increase at a higher rate in the final quarter due to the timing of original programming and availability of acquired content. Further, management hinted that operating income at Warner Bros. is likely to decline in the final quarter of 2017 due to the number and mix of theatrical home entertainment releases, including the comparison with the release of Suicide Squad in the year-ago period. It will also be affected by rise in costs related to the mix of theatrical releases and television series production. Decline in overall advertising spending and currency headwinds may also impact the performance.

Time Warner's expects HBO subscription revenue growth rate to rise in final-quarter 2017 relative to the quarter under review. Although programming cost is projected to increase at a higher rate, growth in revenue will suffice to offset the same. Consequently, the company anticipates operating income growth during the fourth quarter.

Time Warner Inc. Price, Consensus and EPS Surprise

What the Zacks Model Unveils

Our proven model shows that Time Warner is likely to beat estimates this quarter as the stock has the right combination of two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen.

Time Warner has an Earnings ESP of +0.40% and a Zacks Rank #3. This makes us reasonably confident that the bottom line is likely to outperform estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Activision Blizzard, Inc. (NASDAQ:ATVI) has an Earnings ESP of +1.94% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Discovery Communications, Inc. (NASDAQ:DISCA) has an Earnings ESP of +2.61% and a Zacks Rank #3.

Comcast Corporation (NASDAQ:CMCSA) has an Earnings ESP of +3.07% and a Zacks Rank #3.

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