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Is Disappointment in Store for Arista (ANET) in Q2 Earnings?

Zacks Equity Research

Arista Networks, Inc. ANET is scheduled to report second-quarter 2019 results after the closing bell on Aug 1. In the last reported quarter, the company delivered a positive earnings surprise of 11.6%. Notably, Arista surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, the average beat being 12%.

For the second quarter, the company is likely to report higher consolidated revenues on a year-over-year basis driven by healthy growth dynamics.

Factors to Consider

Arista continues to benefit from the expanding cloud networking market owing to strong demand for scalable infrastructure. In addition to high capacity and easy availability, its cloud networking solutions promise predictable performance along with programmability that enables integration with third-party applications for network management, automation and orchestration. During the second quarter, the company unveiled its new 7800R product family for 400G cloud networking, along with the latest generation of 7500R and 7280R Series to address every layer of the network. These are expected to get reflected in the upcoming results.

The company also expanded its cognitive campus portfolio with unified wired and wireless campus edge products. Based on open cloud networking principles used to build modern cloud datacenters, Arista’s Cognitive Cloud Networking has leveraged Extensible Operating System (EOS) and CloudVision to extend the Universal Cloud Network architecture to the campus. During the quarter, the company’s cutting-edge switching infrastructure was chosen by CBC/Radio-Canada — Canada’s national public broadcaster — for the latter’s new “Maison de Radio-Canada” in Montreal. Notably, Arista EOS will provide the performance of a traditional broadcast infrastructure, while enabling CBC to meet customer demands for high definition audio and video, including 4k and 8k.

With solid demand for data center switches and continued spending on IT infrastructure products (server, enterprise storage and Ethernet switches) for deployment in cloud environments, Arista is likely to record healthy rise in revenues. The company expects second-quarter revenues in the range of $600 million to $610 million. The Zacks Consensus Estimate for the same is pegged at $606 million. In the year-earlier quarter, the company generated revenues of $520 million.

Earnings Whispers

Our proven model does not conclusively show that Arista will beat earnings in the second quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.73% with the former pegged at $2.18 and the latter at $2.22. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Arista Networks, Inc. Price and EPS Surprise

 

Arista Networks, Inc. Price and EPS Surprise

Arista Networks, Inc. price-eps-surprise | Arista Networks, Inc. Quote

Zacks Rank: Arista has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
  
Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ciena Corporation CIEN is set to release quarterly numbers on Aug 29. It has an Earnings ESP of +5.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Motorola Solutions, Inc. MSI is +1.25% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Aug 1.

The Earnings ESP for TELUS Corporation TU is +2.61% and it carries a Zacks Rank of 2. The company is slated to report quarterly numbers on Aug 2.

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