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4 Technology Stocks Set to Trump Earnings Estimates in Q3

Madhura Bhattacharyya

Technology stocks are witnessing a lackluster third-quarter 2019. Sluggish performance of semiconductors is a major drag on the technology sector.

Semiconductors, which are the building blocks of most emerging technologies like AI and IoT, reported weak sales in July and August.  This was largely because higher tariffs on electronics, thanks to the U.S.-China trade tussle, negatively impacted demand for chips. This is further evident from the results of a number of notable tech companies.

Notably, softening end-market conditions, macro-economic headwinds and U.S.-China trade tensions adversely impacted Texas Instruments’ third-quarter results. Additionally, restriction on sales to Huawei dampened results of companies like Xilinx, which provided sluggish guidance.

However, global semiconductor sales rebounded in September. Strengthening data center market, improving trend in PC shipments, emergence of 5G and rapid adoption of IoT are likely to have been key tailwinds. The upbeat results of some semiconductor stocks are a breather in this regard.

Evidently, STMicroelectronics’ third-quarter results benefited from improving market conditions and growing adoption of imaging sensors, analog products and secure microcontrollers. Also, strong momentum across data center space, IoT segment and commercial PC business boosted Intel’s third-quarter results.

Tech Stocks’ Growth Promises

Tech companies’ third-quarter results continue to reflect the benefits of the speedy uptake of cloud computing, AI, IoT, cloud-based gaming, wearables and drones.

Moreover, the rising preference for online gaming, music and video-streaming services is a major growth driver.

Further, increasing usage of social media platforms, digital advertising growth, adoption of online payment methods, expanding online delivery modes and strong e-commerce growth are boosting the prospects of companies in this sector.

Notably, Facebook delivered strong third-quarter 2019 results, driven by steady user growth across all regions and a robust uptrend in ad revenues. Moreover, Amazon’s third-quarter results gained traction from solid AWS portfolio and strengthening Alexa features.

Route to the Right Pick

With the presence of several industry players, finding the right technology stocks having the potential to beat earnings estimates can be daunting. Our proprietary methodology, however, makes it fairly simple.

You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP is our proprietary methodology for determining stocks, which have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
 
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
 
Our Choices
 
Given below are four technology stocks that have the right combination of elements to beat on earnings this reporting cycle:

San Fransisco, CA-based Fastly Inc. FSLY is set to report third-quarter 2019 results on Nov 7. The company has an Earnings ESP of +12.73% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for loss has been stable at 14 cents per share over the past 30 days.

Fastly, Inc. Price and EPS Surprise

Fastly, Inc. Price and EPS Surprise

Fastly, Inc. price-eps-surprise | Fastly, Inc. Quote

Headquartered in Washington, DC, WA, Cogent Communications Holdings, Inc. CCOI is set to report third-quarter 2019 results on Nov 7. The company has an Earnings ESP of +4.11% and a Zacks Rank of 3.

The Zacks Consensus Estimate for earnings has been steady at $18 cents over the past 30 days.

Cogent Communications Holdings, Inc. Price and EPS Surprise

Cogent Communications Holdings, Inc. Price and EPS Surprise

Cogent Communications Holdings, Inc. price-eps-surprise | Cogent Communications Holdings, Inc. Quote

Austin, TX-based Q2 Holdings, Inc. QTWO is Zacks #3 Ranked and has an Earnings ESP of +40.00%.

The company is set to report third-quarter 2019 results on Nov 6. The consensus mark for earnings has been stable at 3 cents over the past 30 days.

Q2 Holdings, Inc. Price and EPS Surprise

Q2 Holdings, Inc. Price and EPS Surprise

Q2 Holdings, Inc. price-eps-surprise | Q2 Holdings, Inc. Quote

Seattle, WA-headquartered Zillow Group ZG is a #3 Ranked stock and has an Earnings ESP of +5.09%. The company is set to report third-quarter 2019 results on Nov 7.

The Zacks Consensus Estimate for loss is widened to a loss of 22 cents per share from a loss of 20 cents over the past month.

Zillow Group, Inc. Price and EPS Surprise

Zillow Group, Inc. Price and EPS Surprise

Zillow Group, Inc. price-eps-surprise | Zillow Group, Inc. Quote

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Zillow Group, Inc. (ZG) : Free Stock Analysis Report
 
Cogent Communications Holdings, Inc. (CCOI) : Free Stock Analysis Report
 
Fastly, Inc. (FSLY) : Free Stock Analysis Report
 
Q2 Holdings, Inc. (QTWO) : Free Stock Analysis Report
 
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