Key Predictions for Earnings of FB, PYPL, FFIV and More
The second-quarter 2018 reporting cycle is displaying encouraging trends with notable momentum on the revenue side, positive surprises and impressive estimates for the upcoming results.
Per the latest Earnings Preview, total earnings of the 87 S&P 500 members that have already reported are up 20.69% on a year-over-year basis (86.2% of the companies beat EPS estimates). Total revenues are up 10.3% (77% of the companies beat top-line estimates).
Second-quarter earnings of S&P 500 companies are anticipated to be up 21% from the year-ago quarter on revenues that are estimated to increase 8.3%. Notably, the first quarter witnessed 24.6% increase in earnings and 8.7% growth in revenues, the highest in the last seven years.
Notably, the Technology, Finance, Energy, Basic Materials sectors are expected to come up with an impressive quarterly performance.
Technology Earnings Expectations
We believe a surge in demand for data centers and cloud-based platforms have aided earnings growth. Demand for augmented/virtual reality devices, advanced driver assisted systems (ADAS), Artificial Intelligence (AI) solutions and Internet of Things (IoT) related software has also increased, leading to the splendid figures.
Total earnings of technology companies are expected to increase 23.5% on a year-over-year basis while total revenues are anticipated to increase 11%.
Our research shows that a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock when combined with a positive Earnings ESP has high chances of beating earnings estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Let’s take a sneak peek into four technology companies that are set to report quarterly earnings on Jul 25:
We are slightly cautious about Facebook FB reeling under issues related to Russian meddling in 2016 U.S. Presidential Elections, along with the proliferation of fake news, terrorism related content and political propaganda. The Cambridge Analytica data privacy scandal (which surfaced in mid-March) ignited the #deletefacebook movement, sparking fears of mass exodus from the social network.
Further, the company’s data sharing and handling procedures were questioned. These are likely to negatively impact engagement level, which, along with user base, holds the key to attracting advertising dollars.
Nevertheless, Facebook has been benefiting from its massive user base, increasing engagement levels and frequent updates of its applications. Further, the company’s initiative to secure its platform is a tailwind.
Facebook stock has gained 19.5% year to date against the 0.4% decline of the industry it belongs to. Facebook has a Zacks Rank #2 (Buy). (Read more: Will Data Fiasco Leave a Mark on Facebook Q2 Earnings?)
PayPal’s PYPL business is highly dependent on its active customer accounts and total payment volume (TPV). The company has been witnessing massive growth in these two metrics over the past several quarters.
Strong adoption of PayPal’s payment solutions, strengthening presence in the global market and strategic partnerships are expected to drive growth. Further, the company’s new partnerships with CaixaBank, Bankia, HSBC and Barclays Bank remain positives.
However, mounting acquisition expenses, integration risk and intensifying competition in the online payment space are major concerns for the company.
PayPal stock has gained 21.2% year to date, substantially outperforming the 20.3% rally of the industry it belongs to. The company currently has a Zacks Rank #2. (Read more: PayPal to Post Q2 Earnings: What's in the Offing?)
F5 Networks’ FFIV growth in services and software solutions segment is a key driver. The company’s traction in public cloud deployments, given the surge in demand for security in the multi-cloud environment, is a tailwind.
We note that the company’s software offerings are gaining strength on the back of its virtual Application Delivery Controllers (ADC) in the public cloud. The launch of the company’s BIG-IP Cloud Edition in April is expected to enhance its growth further.
However, a volatile spending environment and increasing competition remain headwinds for F5 Networks’ revenue growth.
F5 Networks stock has gained 31.6% year to date, substantially outperforming the 20.3% rally of the industry it belongs to. The company currently has a Zacks Rank #2. (Read more: F5 Networks to Post Q3 Earnings: What's in the Cards?)
Citrix Systems’ CTXS efforts to expand its product portfolio are impressive. The company’s Cedexis acquisition, which it completed in the previous quarter, added traffic management capabilities. The company also introduced innovations to its Citrix Workspace to support its clientele better with digital transformation at Citrix Synergy conference.
High costs however, have been hurting the bottom line for quite some time. Moreover, Citrix’s results are susceptible to foreign exchange movements as it continues to foray into non-U.S. markets. Increasing long-term debt is also a concern.
Citrix Systems stock has gained 22.8% year to date, substantially outperforming the 20.9% rally of the industry it belongs to. The company currently has a Zacks Rank #3 (Hold). (Read more: Citrix Systems Q2 Earnings: What's In the Offing?)
On Assignment ASGN provides IT and professional services to the technology, engineering, life sciences and government sectors among others.
Apart from innovations, an inorganic growth strategy is driving the company. The company closed the acquisition of ECS Federal, a prominent name among government services contractors, which deals with the delivery of cyber security, IT modernization, cloud and DevOps solutions to government enterprises. This buyout is expected to boost the top line of the company.
On Assignment currently has a Zacks Rank #4 and an Earnings ESP of 0.00%. Our proven model indicates that the company is unlikely to beat estimates.
The stock has gained 32.3% year to date, substantially outperforming the 16.4% rally of the industry it belongs to.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Facebook, Inc. (FB) : Free Stock Analysis Report
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