Electronic Arts (EA) earnings are expected to decline for the second quarter

Electronic Arts (EA) is expected to report a year-over-year profit decline due to lower revenues in its report for the quarter ended September 2022. This widely known consensus outlook reflects well on the company’s earnings picture, but how actual results compare to these estimates is a significant factor that could impact the near-term share price.

Shares could move higher if these key numbers meet expectations in the upcoming earnings report, due on November 1. On the other hand, if these key numbers are not met, the stock could fall.

While management’s discussion of business conditions during the earnings call will largely determine the sustainability of the immediate price change and future earnings expectations, it’s worth having partial insight into the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

In its upcoming report, the video game maker is expected to post quarterly earnings per share of $1.36, which would represent a year-over-year change of -18.6%.

Revenue is expected to be $1.79 billion, down 3.6% from the same quarter last year.

Estimate the trend of change

The consensus EPS estimate for the quarter has been revised 2.24% down to the current level over the last 30 days. This broadly reflects how analysts covering the data have collectively re-evaluated their initial estimates during this period.

Investors should note that the aggregate change may not necessarily reflect the direction of each analyst’s estimate revisions.

Whisper about earnings

Revisions to estimates prior to a company’s earnings release provide an indication of business conditions in the period in which the earnings are expected to be released. Our proprietary surprise prediction model, the Zacks Earnings ESP, is based on this insight.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is a newer revision of the Zacks Consensus EPS estimate. The idea is that analysts reviewing their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and other consensus participants had previously predicted.

Thus, a positive or negative ESP reading theoretically indicates the likely deviation of actual earnings from consensus estimates. However, the predictive power of the model is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when paired with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks in this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of its Earnings ESP.

Please note that a negative earnings ESP reading does not mean a loss of earnings. Our research shows that it is difficult to predict earnings growth with any degree of confidence for stocks with negative ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How have the numbers changed for Electronic Arts?

In the case of Electronic Arts, the Most Accurate Estimate is higher than the Zacks Consensus Estimate, suggesting that analysts have recently become more optimistic about the company’s earnings prospects. This translates into an Earnings ESP of +3.65%.

On the other hand, the company’s stock currently has a Zacks Rank of #4.

So the combination of these factors makes it difficult to confidently predict that Electronic Arts will beat consensus earnings per share estimates.

Does the history of surprising results have any clue?

When calculating a company’s future earnings estimates, analysts often wonder how well it was able to match previous estimates. So it’s worth taking a look at the company’s surprise history to assess its impact on the upcoming number.

For the last reported quarter, Electronic Arts was expected to post earnings of $0.29 per share when it actually posted earnings of $0.32, delivering a surprise of +10.34%.

The company has beaten consensus EPS estimates twice over the last four quarters.

Bottom line

Improving or lacking earnings may not be the only basis for a stock’s value rising or falling. Many stocks lose value despite good earnings because of other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite losing profits.

That said, betting on stocks that are expected to exceed earnings expectations increases your chances of success. Therefore, it is worth checking the company’s Earnings Rank and Zacks Rank before their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

Electronic Arts doesn’t seem like a compelling candidate to beat earnings. However, investors should also pay attention to other factors if they want to bet on or stay away from these stocks ahead of an earnings release.

Expected results of an industry player

Another soon-to-be stock in the Zacks Toys – Games – Hobby industry, Jakks Pacific (JAKK), is expected to post earnings of $3.69 per share for the quarter ended September 2022. These estimates indicate a year-over-year change of -1.9%. Revenue for the quarter is expected to be $279.36 million, up 17.9% from the same quarter last year.

The consensus EPS estimate for Jakks has not changed over the last 30 days. However, the higher most accurate estimate resulted in an earnings ESP of 3.25%.

Combined with a Zacks Rank of 3 (Hold), this Earnings ESP indicates that Jakks is likely to outperform the consensus EPS estimate. The company has beaten consensus EPS estimates in each of the four consecutive quarters.

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Electronic Arts Inc. (EA): Free stock analysis report

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