The second-quarter 2018 reporting cycle has commenced, with 22 S&P 500 members reporting quarterly results as of Jul 11, according to the latest Earnings Outlook. Total earnings of these companies are up 29% on a year-over-year basis on 12.5% higher revenues.
Per the report, Technology is one of the 11 sectors anticipated to report double-digit earnings growth this quarter. Apart from Technology, growth in the second quarter is expected to majorly come from Energy, Basic Materials, Industrial Products, Finance and Retail sectors.
Let’s Take a Closer Look at the Tech Sector
The technology sector, in spite of a turbulent ride in the first quarter, was one of the top performers and is expected to remain so in the second quarter. Per the report, the sector’s total earnings are expected to grow 23.8% from the same period last year on 10.7% higher revenues.
Strong demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software and hardware continue to drive the sector.
Increasing number of Internet users coupled with improvement in Internet penetration and rapid adoption of 4G Volte technology have also been key catalysts for tech providers.
Robust increase in overall IT spending is giving further impetus to tech sector. Per the latest report by Gartner, worldwide IT spending is projected to witness record growth to reach $3.7 trillion this year.
However, increasing regulations for social media companies like the implementation of EU’s General Data Protection Regulation is an overhang. Further, the uncertain environment created due to the ongoing trade war between the United States and China is also a concern.
All said, the optimism surrounding the technology sector is well reflected in its year-to-date performance. Notably, the Technology Select Sector SPDR ETF (XLK) returned 12.6% in the year-to-date period compared with the S&P 500’s gain of 4%.
How to Make the Right Pick?
Given the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could be a daunting task. Our proprietary methodology, however, makes it fairly simple for you. 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.
Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides 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%.
Given below are five technology providers that have the right combination of elements to post an earnings beat this quarter:
Mellanox Technologies, Ltd. (MLNX) — Based in Sunnyvale, CA, Mellanox, a fabless semiconductor company, is a designer, manufacturer and seller of interconnect products and solutions on a global basis. Notably, the company outpaced the Zacks Consensus Estimate in the preceding four quarters, with an average positive earnings surprise of 12.98%.
The company is slated to report second-quarter 2018 results on Jul 17. Currently, Mellanox has an Earnings ESP of +4.44% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
International Business Machines Corporation (IBM) — Armonk, NY-based, IBM provides advanced information technology solutions, including computer systems, software, storage systems and microelectronics. We note that the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 2.92%.
This Zacks Rank #3 stock has an Earnings ESP of +0.37%. The company is set to report second-quarter 2018 results on Jul 18.
Syntel Inc. (SYNT) — Troy, MI-based Syntel is a global provider of integrated information technology and knowledge process services. We note that the company beat the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 29.59%.
The company is scheduled to release second-quarter 2018 results on Jul 19. Currently, Syntel has an Earnings ESP of +6.03% and a Zacks Rank #1.
Qualys Inc. (QLYS) — Foster City, CA-based Qualys is a provider of cloud security and compliance solutions that enable organizations to identify security risks to their information technology infrastructures help protect their IT systems and applications from cyber-attacks. The company beat the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 45.89%.
This Zacks Rank #1 stock has an Earnings ESP of +2.41%. The company is set to report second-quarter 2018 results on Jul 31.
CyberArk Software Ltd. (CYBR) — Headquartered in Petach Tikva, Israel, CyberArk provides information technology security solutions. The company offers services, which protect organizational privileged accounts from cyber-attacks. We note that the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 27.54%.
This Zacks Rank #1 stock has an Earnings ESP of +3.73%. The company is set to report second-quarter 2018 results on Aug 7.
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