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Can Sony Repeat Its Surprise Earnings Beat This Time Around?

Friday, October 28, 2016 7:33
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sony-sne-logoFrom Zacks: Sony Corporation (SNEAnalyst Report) is set to report second-quarter fiscal 2016 results on Nov 1. Last quarter, the company had pleasantly surprised investors by reporting earnings per share of 16 cents, when the consensus estimate was pegged at a loss of 28 cents.

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

Key Factors Influencing Q2

In recent times, Sony has braved most headwinds leveraging on the strength of its flagship gaming product, PlayStation (PS). PS4 hardware and software sales have surpassed all the previous versions, bolstering Sony’s revenues to a great extent. During the fiscal second quarter, the company launched two new versions of its star product PS4, namely PlayStation 4 Pro and an energy-efficient PS4 machine, to maintain its sales lead.

Also, Sony has upgraded a few of its own games to leverage on the more powerful machines. Buoyed by encouraging PS4 hardware sales over the past few years, the company expects the sales momentum to continue through fiscal 2016 and exceed the 17.7 million unit mark, which was sold in the last fiscal year. We believe that impressive console sales and subsequent subscriber expansion of PlayStation network will act as key top-line catalysts for the fiscal second quarter.

In addition to the Gaming segment, Sony’s Pictures segment and Financial Services can act as other major profit churners. While the company’s huge Media Networks’ customer base and blockbuster movies have been fuelling growth of the Pictures segment, Financial Services are witnessing an uptick from healthy Sony Life’s revenue growth. Also, driven by major record releases, including pop icon Britney Spears’ ninth studio album – Glory – Music segment may act as growth driver.

Furthermore, Sony’s strategic buyout of the Belgium-based company – eSATURNUS NV – is anticipated to boost the sales of the company’s digital healthcare portfolio. This apart, Sony’s diligent restructuring actions since fourth-quarter fiscal 2015, to attain a leaner organizational structure, are likely to enhance profitability. The company has reaped benefits from these actions and we believe that they can slash operating expenses for the soon-to-be-reported quarter, thus supplementing growth.

Despite these positives, softness in majority of its business lines, including Mobile Communications, Imaging Products & Solutions, Home Entertainment & Sound, Semiconductors and Components, are likely to dampen growth. Especially mobile, sensor and devices are facing signifcant headwinds, which are likley to hurt its financial performance for the fiscal second quarter. In addition, the sensor business is expected to suffer setback from the dipping smartphone sales, particularly triggered by a slowdown in the company’s emerging markets.

Moreover, intensyfying competition in the smartphones domain is further weighing down on profitability. Also, sluggish battery and camera module business are likely to be a drag on the company’s to-be-reported quarter. In additon, foreign currency headwinds have played a major spoilsport in the past and are expected to thwart the growth momentum for the fiscal second quarter as well.

This apart, the Kumamoto earthquakes have severly marred Sony’s prospects. The company forecasts negative impact on the operating income of 80 billion Yen for fiscal 2016, on account of the earthquake. Semiconductor and Imaging Products & Solutions  has been grappling with major issues since the earthquake, which is expected to put pressure on the company’s financials for the quarter.

Earnings Whispers

Our proven model does not conclusively show that Sony will beat earnings in its fiscal second quarter. This is because a stock needs to have both a positiveEarnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 7 cents.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Though Sony has a Zacks Rank #1, its 0.00% ESP makes surprise prediction difficult.

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

SONY CORP ADR Price and EPS Surprise

SONY CORP ADR Price and EPS Surprise | SONY CORP ADR Quote

Stocks That Warrant a Look

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

Boyd Gaming Corporation (BYDSnapshot Report) with an Earnings ESP of +16.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nexstar Broadcasting Group, Inc. (NXSTSnapshot Report) with an Earnings ESP of +12.64% and a Zacks Rank #2.

Michael Kors Holdings Limited (KORSAnalyst Report) with an Earnings ESP of +1.14% and a Zacks Rank #2.

This article is brought to you courtesy of Zacks Research.

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