CHICAGO, Aug. 5, 2014 /PRNewswire/ --Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog includethe Walt Disney Company (NYSE:DIS-Free Report), Scientific Games Corp (Nasdaq:SGMS-Free Report), Bally Technologies (NYSE:BYI-Free Report), International Game Technology (NYSE:IGT-Free Report) and Konami (NYSE:KNM-Free Report).
Today, Zacks is promoting its 'Buy' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Monday's Analyst Blog:
Is Disney (DIS) Expected to Beat or Miss Earnings?
Media giant, The Walt Disney Company (NYSE:DIS-Free Report), is set to report its third-quarter fiscal 2014 results on Aug 5, 2014. Last quarter, it posted a positive earnings surprise of 14.4%. Let us see how things are developing for this announcement.
Growth Factors this Quarter
Rise in programming costs due to higher sports rights deals (World Cup, NLF, Major League Basketball and college football rights and SEC Network Launch) are the near-term headwinds that are likely to prove a drag on Disney's quarterly performance. Moreover, the unfavorable impact from currency fluctuations is an added concern. However, the impact of Easter that fell in the third quarter should boost the performance of Parks and Resorts segment. Also, the roaring success ofFrozen should continue to enhance profitability at both Studio Entertainment and Consumer Products segments.
In the latest development, Disney has signed a multi-year distribution agreement with The National Cable Television Cooperative (NCTC) to relay best quality sports, news and entertainment content to the customers of NCTC members across Television, smartphones, computers, gaming consoles, tablets and other connected devices.
Earnings Whispers
Our proven model does not conclusively project Disney as likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and Zacks Rank #1 #2 or #3 for this to happen. This is not the case here as you will see below.
Zacks ESP: ESP for Disney is -0.86%. This is because the Most Accurate estimate stands at $1.16 per share whereas the Zacks Consensus Estimate stands at $1.17.
Zacks Rank: Disney's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise. We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
Scientific Games to Buy Bally Tech for $3.3B
Scientific Games Corp (Nasdaq:SGMS-Free Report) recently announced that it will acquire slot-machine maker, Bally Technologies (NYSE:BYI-Free Report) for $3.3 billion in cash. The company is paying $83.30 per share, which is 38.4% premium to Bally's closing price of $60.17 on Jul 31, 2014.
Including refinancing of Bally's existing net debt, the purchase price would amount to $5.1 billion. Shares of Scientific Games were up 2.81% ($0.24) while Bally shares surged 29.13% ($17.53) following the news.
The boards of both the companies have approved the proposal for acquisition. The approvals of Bally's shareholders and antitrust regulators are however still pending. Nevertheless, the transaction is expected to close in early 2015.
Recently, the company announced the organizational structure for the combined entity. Post-merger, Bally Technologies will function as a wholly-owned subsidiary of Scientific Games.
Upon the closure of the transaction, Gavin Isaacs will continue serving as the President and Chief Executive Officer (CEO) of Scientific Games. David Robbins, Chairman of the Board of Directors of Bally will join the Board of Scientific Games where he will take up the role of Vice-Chairman.
Scientific Games expects to incur $75 million as acquisition related expenses and another $40 million in the form of capital costs. Post-acquisition, Scientific Games expects $220 million in annual cost savings and another $25 million in annual capital-expenditure savings. .
Scientific Games' acquisition of Bally Technologies will likely diversify the former's product portfolio and expand its global footprint. Moreover, it eliminates one of the nearest competitors, which will help in expanding market share.
Acquisitions have been a part of Scientific Game's growth story. In 2013, the company bought WMS Industries for $1.42 billion. Other acquisitions include Barcrest Group Limited (2011), Sceptre Leisure Solutions (2010) and GameLogic (2010).
Bally acquisition will help Scientific Games to face competition from the combined entity of GTECH and International Game Technology (NYSE:IGT-Free Report) in the long run. Per Bloomberg, the inclusion of SHFL Entertainment, which Bally bought in 2013 gives a slight competitive edge to Scientific Games against GTECH.
However, we believe that the acquisition will put Scientific Games balance sheet under further pressure, as the company is most likely to opt for debt financing to buy Bally. This may hurt profitability due to lower top-line growth. Sluggish casino market that continues to face weak consumer spending and increasing competition from Internet based game providers such as Konami (NYSE:KNM-Free Report) is expected to remain a major headwind going forward.
Currently, Scientific Games has a Zacks Rank #5 (Strong Sell).
Today, Zacks is promoting its 'Buy' stock recommendations. Get #1Stock of the Day pick for free.
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