Alcatel Lucent Inc. (ALU) is set to report second quarter 2013 results on July 31. Last quarter it posted an 81.8% negative surprise. Let’s see how things are shaping up for this announcement.
Factors this Past Quarter
The company’s first-quarter results were not encouraging, as overall revenues dropped due to declines across its segments. In addition, gross margin was impacted by weakness of the U.S. dollar and an adverse impact from product and geographic mix.
Further, even after changing its chief executive officer twice, the company has failed to revive its earnings growth. In addition, Alcatel-Lucent has a credit rating of B3 from Moody’s Investors Service and B- at Standard and Poor's; both being six steps below investment grade ratings.
Our proven model does not conclusively show that Alcatel Lucent is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: (Read: Zacks Earnings ESP: A Better Method): That is because the Most Accurate estimate stands at -$0.13, while the Zacks Consensus Estimate is -$0.12. That is a difference of -8.3%.
Zacks #3 Rank (Hold): Alcatel Lucent’s Zacks Rank #5 (Strong Sell) lowers the predictive power of ESP because the Zacks Rank #5 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
- Harmonic Inc. (HLIT), Earnings ESP of 100.0% and Zacks Rank #1 (Strong Buy)
- InvenSense Inc. (INVN), Earnings ESP of 8.3% and Zacks Rank #2 (Buy)
- Gartner Inc. (IT), Earnings ESP of 1.9% and Zacks Rank #2 (Buy)
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