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Factors Setting the Tone for Pegasystems' (PEGA) Q2 Earnings

Zacks Equity Research
·4 mins read

Pegasystems Inc. PEGA is set to release second-quarter 2020 results on Jul 28.
   
The Zacks Consensus Estimate for second-quarter revenues is pegged at $219.5 million, which indicates growth of 6.8% from the year-ago quarter’s reported figure.

The consensus mark for loss has been steady in the past 30 days at 28 cents per share. The company reported a loss of 30 cents in the year-ago quarter.

Notably, the company beat the Zacks Consensus Estimate in one of the trailing four quarters and missed the same thrice. Pegasystems has a trailing four-quarter negative earnings surprise of 95.6%, on average.

Let’s see how things have shaped up prior to this announcement.

Pegasystems Inc. Price and EPS Surprise

Pegasystems Inc. Price and EPS Surprise
Pegasystems Inc. Price and EPS Surprise

Pegasystems Inc. price-eps-surprise | Pegasystems Inc. Quote

Factors Likely to Have Influenced Q2

Pegasystems’ second-quarter 2020 performance is expected to have benefited from robust traction for its cloud-based offerings. Demand is being driven by the coronavirus-induced digital transformation across all industries that has prompted companies to transition from on-premise to cloud.

The Zacks Consensus Estimate for second quarter cloud revenues is pegged at $47.8 million, which indicates growth of 50.8% year over year.

Moreover, the company’s efforts to roll out new solutions to help customers successfully tackle the ongoing pandemic are likely to have contributed to second-quarter results. Notably, Pegasystems launched its Crisis Response Solutions Portfolio during the quarter under review, which consists of 18 solutions that aids business handle unforeseen issues like new emergency regulations and changing claims requirements.
 
Additionally, huge surge in the number of people calling customer support for their queries, owing to the pandemic, is likely to have boosted demand for the company’s customer relationship management (CRM) solutions among insurance and financial services customers. Notably, Pegasystems’ CRM offering allows transaction-heavy entities to manage a wide variety of customer interactions.

Increasing popularity of the Pegasystems’ solutions among public sector and government entities is also expected to have boosted the top line in the to-be-reported quarter.

Growing clout of the company's products instill confidence in the stock. Notably, shares of the company have returned 32.4% in the year-to-date period compared with the industry’s rally of 26.2%.

Markedly, the company’s Pega Government Platform and Pega Customer Service offerings were adopted by the Internal Revenue Service (IRS) for a new enterprise case management system during the second-quarter. Pegasystems also introduced a new application to help the Bavarian government provide emergency to relief to small and medium-sized businesses (SMBs) affected by COVID-19.

Further, Pegasystems’ business process management (BPM) solutions are expected to have witnessed solid adoption among healthcare customers as they are under pressure to support their doctors and nurses who are at frontlines of the fight against the pandemic. During the quarter under review, the company helped a top U.S. healthcare company develop an application to better manage staffing and scheduling requirements to support its patient population.

Nevertheless, the coronavirus crisis-induced slowdown has impacted small and medium businesses. This is likely to have dampened demand for the company’s consulting solutions. The Zacks Consensus Estimate for second quarter consulting revenues is pegged at $56 million, which indicates decline of 7.1% year over year.

Moreover, increasing investments on product enhancements as well as sales & marketing are likely to have limited margin expansion the second-quarter.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for Pegasystems this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Pegasystems has a Zacks Rank #2 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider as our proven model shows that these have the right mix of elements to beat estimates this time:

Anaplan, Inc. PLAN has an Earnings ESP of +1.64% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip Technology Incorporated MCHP has an Earnings ESP of +3.09% and a Zacks Rank of 1.

Etsy, Inc. ETSY has an Earnings ESP of +10.98% and a Zacks Rank of 2.

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