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Will Lower Revenues Hurt BlackBerry's (BB) Q3 Earnings?

BlackBerry Limited BB is scheduled to report third-quarter fiscal 2019 financial results (ended Nov 30, 2018) before the opening bell on Dec 20. In the last reported quarter, the company delivered a positive earnings surprise of 100%.

Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

BlackBerry has a leading position in the fast-growing Enterprise of Things market. The company’s strategy to capitalize on the market’s profitable opportunities with BlackBerry Spark — its platform to communicate and collaborate between smart endpoints — bodes well.

During the to-be-reported quarter, BlackBerry expanded its partnerships with Android and PLDT Enterprise through Smart Communications, to provide MiCab with a secure enterprise cloud solution that maintains data privacy and boosts service delivery. MiCab is an online taxi-hailing platform. Notably, the solution integrates the security of BlackBerry Unified End-Point Management with the customizable Android Enterprise, and network connectivity and devices from Smart.

BlackBerry also partnered with Virginia Tech to train mechanical engineers on BlackBerry QNX technology — a reliable software for connected and autonomous cars. BlackBerry QNX provides OEMs and Tier 1 vendors around the world with advanced technology to protect hardware, applications and systems from cyberattacks. The company aims to help advance the Department of Mechanical Engineering’s vehicle research as well as provide hands-on training with QNX software.

Moreover, the company added a quantum-resistant code signing server to its range of cryptography tools. Notably, the solution allows software to be digitally signed with a scheme that is hard to break with a quantum computer. BlackBerry’s code signing server uses cryptographic libraries from ISARA Corporation — a leader in agile quantum-safe security solutions.

The companies aim to protect software of long-lived assets against an increasingly risky computing ecosystem with growing security threats. Such strategic collaborations and state-of-the-art products will likely help the company to improve its top line in the quarter.

For the quarter, the Zacks Consensus Estimate for total revenues stands at $213 million, down from $226 million reported in the year-earlier quarter. This is primarily due to changes in the accounting and sales model (implementation of ASC 606), which is likely to continue negatively impacting the company’s enterprise software revenues for the remainder of fiscal 2019. Adjusted earnings per share are projected to be 2 cents, down from 3 cents reported a year ago.

What Our Model Says

Our proven model does not conclusively show a beat for BlackBerry this quarter as it does not have the two 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: BlackBerry’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 2 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

BlackBerry Limited Price and EPS Surprise

BlackBerry Limited Price and EPS Surprise | BlackBerry Limited Quote

Zacks Rank: BlackBerry currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) 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:

SYNNEX Corp. SNX has an Earnings ESP of +5.52% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fastenal Co. FAST has an Earnings ESP of +1.67% and a Zacks Rank #2.  

UnitedHealth Group Inc. UNH has an Earnings ESP of +1.33% and a Zacks Rank #2.  

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