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Will Media ETF (PBS) Continue to Shine in Q1 Earnings?

The earnings season is in full swing with 72.8% of the S&P 500 companies having reported so far. The attention has now turned to the media space given the spate of earnings releases from the top players – CBS Corp (CBS), Time Warner (TWX), and Twenty-First Century Fox (FOXA) – this week and from The Walt Disney Co. (DIS) next week.
 
These stocks are among the top five holdings of PowerShares Dynamic Media Portfolio (PBS) accounting for nearly 5% share each. This is the only pure play fund providing exposure to media stocks under one roof. It seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value by tracking the Dynamic Media Intellidex Index.

This approach results in the basket of 30 stocks with an expense ratio of 0.59%. The media ETF has gained an impressive 9.1% over the past three months. Will this strong performance continue for PBS?

Let’s delve into the earnings picture of the four firms that will likely set up the movement of the fund in the coming days (read: 5 ETFs to Buy for Q2):
 
Inside The Earnings Prediction
 
CBS is slated to release earnings after the closing bell today. The stock has seen positive earnings estimate revision of a penny over the past 90 days for the yet-to-be-reported quarter. Additionally, it delivered an average positive earnings surprise of 4.13% in the last four quarters. CBS has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The stock has a VGM Score (V stands for Value, G for Growth and M for Momentum) Score of ‘B’.

Time Warner has a Zacks Rank #3 and an Earnings ESP of 1.55%, indicating a reasonable chance of beating estimates this quarter. The stock delivered positive earnings surprises in the last four quarters, with an average beat of 12.54%. However, the world's leading media and entertainment company saw negative earnings estimate revision of 4 cents over the past 90 days for the to-be-reported quarter. The stock has a VGM Score of ‘B’. The company is expected to report before the opening bell on May 4 (read: ETF to Ride on Batman v Superman Movie Win).

The earnings surprise prediction is also difficult for Twenty-First Century Fox that has a Zacks Rank #3 and an Earnings ESP of 0.00%. It delivered average positive earnings surprises of 3.95% in the last four quarters. However, the Zacks Consensus Estimate for first-quarter 2016 earnings was revised down by a penny over the past three months. The stock has a miserable VGM Score of ‘D’. The company will report after the closing bell on May 4.

The Walt Disney, expected to report after the closing bell on May 10, has a Zacks Rank #3 and an Earnings ESP of -2.13%, indicating less chances of beating estimates this quarter. The stock has seen downward earnings estimate revision by a couple of cents for the yet-to-be-reported quarter but delivered positive earnings surprises in the last four quarters, with an average beat of 7.72%. The stock has a good VGM Score of ‘B’.

Industry Trends

While digging into the earnings picture is crucial, industry trends also play an important role in determining the future performance of the fund.

With changing consumer habits and the new age of digital entertainment, the media industry is going through the consolidation phase. This is especially true as investors are moving quickly to the world of ‘Web’ through tablets and smartphones, pushing traditional print media and cable TV into distress (see: all the Consumer Discretionary ETFs here).

As a result, spending on broadcast TV advertising is rising over that of cable TV networks with video leading the way. According to Standard Media Index, spending on broadcast TV advertisement jumped 10% year over year in the first quarter following a 13% spike in the fourth quarter while cable TV ad spending flattened after rising 13% in the fourth quarter. The trend is likely to continue in the coming years and the U.S. digital video advertising market is expected to double by 2019 per eMarketer.

Further, many of the segments, like Cable TV and MOVIE/TV PROD/DISTRB, in this sector receive solid a Zacks Industry Rank in the top 43%, suggesting that they are poised to outperform their peers in the coming months (read: 3 Consumer Discretionary ETFs Upgraded to Strong Buy).
 
Though there is a lack of clarity about earnings surprises, the ongoing shift to the online-based platform is expected to provide a boost to the results of the media companies, pushing the ETF higher. Additionally, PBS has a strong Zacks ETF Rank of 2 or’ Buy’ rating with a Medium risk outlook, suggesting its continued outperformance.
 
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PWRSH-DYN MEDIA (PBS): ETF Research Reports
 
CBS CORP (CBS): Free Stock Analysis Report
 
TIME WARNER INC (TWX): Free Stock Analysis Report
 
TWENTY-FST CF-A (FOXA): Free Stock Analysis Report
 
DISNEY WALT (DIS): Free Stock Analysis Report
 
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