Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Forget Disney; Buy These 4 Consumer Discretionary Stocks

Late on Tuesday, The Walt Disney Company (DIS) reported its most disappointing results in recent history. The media giant missed both revenues and earnings estimates for the first time since the second quarter of 2011. Shares of Disney slumped 5% in after-hours trading.

Other stocks in the consumer discretionary sector have however been posting impressive results. Despite recent signs of weakness, the economy continues to chug along, making it a good time to pick up stocks from this sector.   

Cord Cutting Hits Media Networks Division

Disney reported fiscal second quarter earnings of $1.36 per share, missing the Zacks Consensus Estimate of $1.40. Revenues came in at $12.97 billion, lower than the Zacks Consensus Estimate of $13.26 billion. To a large extent, the company’s troubles emanated from its media networks division. Cord cutting, the phenomenon which leads consumers to switch from cable subscriptions to online services like Netflix (NFLX) and Amazon (AMZN), was primarily responsible for these worries.

The recent fall in subscribers of Disney’s sports channel ESPN best reflects the fallout of these changes. The number of ESPN’s subscribers came in at 92 million on Oct 2015. This was a decline of 3 million from the year-ago period and 7 million from the year preceding that. The company’s cable networks division, which is part of media networks, experienced a 2% decline in revenue. The broader media networks division also performed below expectations.

Consumer Discretionary Stocks Report Strong Earnings

On the other hand, the consumer discretionary sector, which Disney is a part of, has turned in a creditable performance this earnings season. As of May 6, nearly 84% of consumer discretionary companies within the S&P 500 had reported earnings results. Total earnings of these companies are up 10.8% from the same period last year on 4.1% higher revenues. Of these, 83.9% beat EPS estimates and 64.5% beat revenue estimates.

This was favorable compared to the overall earnings performance of the S&P 500 companies. Total earnings for 436 S&P 500 index members are down 7.5% from the same period last year. Overall, there has been a 1.5% decline in revenues, with 71.3% of the companies beating EPS estimates and 56.4% beating revenue estimates.

Our Choices

Despite Disney’s disappointing results, consumer discretionary stocks have performed decently as a whole. Several of them have posted significant EPS surprises.

It makes good sense to add such stocks to your portfolio. However, it may be difficult to pick winning stocks.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

Royal Caribbean Cruises Ltd. RCL is a cruise company whose ships operate on a selection of worldwide itineraries that include approximately 490 destinations.

Royal Caribbean has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 29.7% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.09, lower than the industry average of 17.47. Its earnings estimate for the current year has improved by 3.3% over the last 30 days. EPS surprise for the first quarter was 78.1%

Dish Network Corp. DISH, together with its subsidiaries, operates the DISH Network direct broadcast satellite (DBS) subscription television service in the U.S., servicing approximately 13.978 million subscribers.

Dish Network has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 17.4% for the current year. It has a P/E (F1) of 16.24, which is lower than the industry average of 19.78. Its earnings estimate for the current year has improved by 18.2% over the last 30 days. EPS surprise for the first quarter was 29.2%

Nutrisystem, Inc. NTRI is a leading provider of weight management products and services.

Nutrisystem has a Zacks Rank #2 and a VGM Score of A.  The company has expected earnings growth of 28.9% for the current year. Its earnings estimate for the current year has improved by 4% over the last 30 days. EPS surprise for the first quarter was 85.7%

Mohawk Industries Inc. MHK is a leading global manufacturer of flooring products that enhance residential and commercial space.

Mohawk Industries has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 17.2% for the current year. Its earnings estimate for the current year has improved by 1.6% over the last 30 days. EPS surprise for the first quarter was 2.1%

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DISH NETWORK CP (DISH): Free Stock Analysis Report
 
ROYAL CARIBBEAN (RCL): Free Stock Analysis Report
 
NUTRI/SYSTEM (NTRI): Free Stock Analysis Report
 
MOHAWK INDS INC (MHK): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research