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Can Netflix (NFLX) Keep the Earnings Streak Alive in Q3?

Zacks

Netflix, Inc. NFLX is set to report third-quarter 2016 results on Oct 17. In the last quarter, the company delivered a positive earnings surprise of 350.00%.

The company has delivered positive earnings surprises in the last four quarters with an average beat of 175.00%.

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

Factors to Consider


The streaming giant has been able to drive subscriber growth both domestically and internationally based on its quality original programs. In Sep 2016, CFO David Wells announced that the company plans to 50% of its total content original over the next few years.

Apart from this, the company is also forming strategic partnerships with the likes of CBC, Northwood Entertainment and others to boost its content further. Moreover, Netflix has been strategically placing itself to meet the needs of the new-age binge-watchers.

However, investors need to watch out for astronomically high costs that come with rapid international expansion and the addition of relevant content. In addition, the company is getting embroiled in legal battles, which remain an overhang. Last month, Twenty First Century Fox filed a lawsuit against Netflix saying the streaming giant has been on a “brazen campaign to unlawfully target, recruit, and poach valuable Fox executives by illegally inducing them to break their employment contracts with Fox to work at Netflix.”

These aside, stiff competition from bellwethers like Amazon.com AMZN, Hulu and Time Warner’s HBO is a concern.

Earnings Whispers

Our proven model does not conclusively show that Netflix 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: Netflix’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 6 cents per share.

Zacks Rank: Netflix has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Meanwhile, 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 a couple of stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Argan, Inc. AGX with an Earnings ESP of +5.26% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Armstrong World Industries, Inc. AWI with an Earnings ESP of +1.32% and a Zacks Rank #2.

NETFLIX INC Price and Consensus

NETFLIX INC Price and Consensus | NETFLIX INC Quote

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