Sphere Entertainment (SPHR) is expected to report a year-over-year profit decline due to lower sales when it announces results for the quarter ending September 2023. This widely known consensus outlook gives a good idea of the company’s earnings position, but how comparing actual results to these estimates is an important factor that could impact the stock price in the near term.
The stock could rise if these metrics beat expectations in the upcoming earnings report. However, if they miss, the stock could sink.
While management’s discussion of terms and conditions at the earnings release will largely determine the sustainability of the immediate price change and future earnings expectations, it is worth gaining insight into the chances of a positive EPS surprise.
Zacks Consensus Estimate
The company is expected to report a quarterly loss of $1.27 per share in its upcoming report, representing a year-over-year change of -6.7%.
Revenue is expected to be $117.3 million, down 70.8% from the year-ago quarter.
Estimation of the revision trend
The consensus EPS estimate for the quarter has been revised downward by 19.5% over the past 30 days to current levels. This essentially reflects the way the covering analysts have collectively reassessed their initial estimates over this period.
Investors should keep in mind that the direction of estimate revisions by individual analysts may not always be reflected in the overall change.
Merit whispers
Estimate revisions prior to a company’s earnings release provide an indication of business conditions for the period in which the results are reported. Our proprietary surprise prediction model – the Zacks Earnings ESP (Expected Surprise Prediction) – is based on this insight.
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The most accurate estimate is a more recent version of the Zacks Consensus EPS estimate. The idea is that analysts who revise their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others who contributed to the consensus had previously predicted.
Thus, a positive or negative Earnings ESP value theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP values.
A positive Earnings ESP is a strong indicator of earnings growth, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.
Please note that a negative Earnings ESP value is not an indication of a loss of profit. Our research shows that stocks with negative Earnings ESP values and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell) are difficult to predict an earnings beat with any degree of certainty.
How have the numbers developed for Sphere Entertainment?
For Sphere Entertainment, the Most Accurate Estimate comes in below the Zacks Consensus Estimate, suggesting analysts have recently become bearish on the company’s earnings outlook. This has resulted in an ESP of -88.93%.
On the other hand, the stock currently has a Zacks Rank of #3.
This combination therefore makes it difficult to conclusively predict that Sphere Entertainment will beat the consensus EPS estimate.
Does the history of earnings surprises provide any clues?
When calculating estimates for a company’s future earnings, analysts often consider the extent to which it has matched previous consensus estimates. So it’s worth taking a look at the surprise story to assess its influence on the coming number.
For the most recently reported quarter, Sphere Entertainment was expected to post a loss of $0.40 per share when the company actually produced a profit of $10.21, delivering a surprise of +2,652.50%.
Over the last four quarters, the company has surpassed consensus EPS estimates twice.
Bottom line
Above- or below-average earnings may not be the sole basis for a stock to rise or fall. Many stocks end up losing ground despite a decline in earnings due to other factors that disappoint investors. Similarly, unforeseen catalysts are helping a number of stocks rise despite a lack of earnings.
However, betting on stocks that are expected to beat earnings expectations increases the chances of success. For this reason, it’s worth checking a company’s Earnings ESP and Zacks Rank before its quarterly release. Be sure to use our Earnings ESP filter to find the best stocks to buy or sell before they are reported.
Sphere Entertainment doesn’t appear to be a compelling candidate for earnings growth. However, investors should also consider other factors to bet on this stock or stay away from it before its earnings release.
Stay on top of upcoming earnings releases with the Zacks Earnings Calendar.
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