Tech Stocks Earnings Due on Nov 8: SQ, GIB, DOX and PEGA

We are approaching the end of the third-quarter reporting cycle, with 406 S&P 500 members or 85.4% of the index’s total membership having already reported their numbers, as of Nov 3, according to Earnings Preview.

Technology has emerged as one of the outperformers. Per the report, 85% of the sector’s market cap in the S&P 500 index has already reported. Approximately 81.8% of the companies delivered a positive earnings surprise, while 86.4% of the companies beat top-line expectations.

Earnings of these companies are up 22.4% from the same period last year on 9.3% higher revenues, mainly driven by solid performance of tech heavyweights such as Facebook, Apple, Alphabet, Microsoft and Intel.

We note that the technology sector has been a strong performer on a year-to-date basis. The sector is benefiting from increasing 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.

Though the overall tech sector is expected to perform well this time around, it does not necessarily mean earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance depends on the overall business environment as well as management’s ability to implement operating and strategic plans.

Having said that, a company may perform poorly in a favorable business environment if it fails to capitalize on the opportunities.

What’s in Store for SQ, GIB, DOX & PEGA?

Payment and point-of-sale (POS) services provider, Square, Inc. SQ will report its third-quarter 2017 results. The Zacks Consensus Estimate for earnings and revenues is pegged at 6 cents per share and $574 million, respectively.

Earnings estimates, when compared with the year-ago quarter’s actual figure of loss of 9 cents per share, indicate remarkable growth. Revenue estimates indicate 30.8% year-over-year growth. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Square’s Q3 results are likely to benefit from an increase in larger sellers as well as midmarket sellers, product usage through cross selling, ongoing operating leverage and lower risk loss rates. (Read: Square Q3 Earnings to Reflect Strong Seller Growth)

Square, Inc. Price and EPS Surprise

Square, Inc. Price and EPS Surprise | Square, Inc. Quote

Let’s now take a sneak peek at CGI Group Inc. GIB, which is scheduled to report fiscal fourth-quarter 2017 results.  We expect the company’s results to be driven by IP30 initiatives, positive impacts of acquisitions, strength in commercial, federal, and technology consulting businesses; metro, financial services, manufacturing and public-sector markets.

However, the ongoing transition from a traditional infrastructure model to software-as-a-service in Nordics and slow public sector growth in the UK may dampen the company’s margins, offsetting the benefit of higher revenues to some extent.

The Zacks Consensus Estimate for the company’s revenues is pegged at $2.2 billion for the to-be-reported quarter, reflecting 9.2% growth from the year-ago quarter’s actual figure. In addition, the Zacks Consensus Estimate for earnings is pegged at 75 cents, reflecting 10.8% growth from the year-ago quarter’s actual figure. The stock has a Zacks Rank #3 (Hold).

CGI Group, Inc. Price and EPS Surprise

CGI Group, Inc. Price and EPS Surprise | CGI Group, Inc. Quote

Another tech company Amdocs Limited DOX is also expected to report fiscal fourth-quarter 2017 results. It continues to expand its global client base by signing long-term contracts and collaborating with major telecommunication industry players worldwide.

Amdocs has introduced a new digital customer management and commerce platform called Optima, which can monetize any product or service and supports the full business lifecycle. The company also launched Amdocs Omni-Channel Experience integrated with Google’s mobile data application program interface. The new products are expected to boost the company's top line in the to-be-reported quarter.

However, Amdocs is highly exposed to foreign currency exchange rate risk. The company saw a sharp decline in revenues from Europe and international markets in the last reported quarter. Economic and political uncertainty in Europe may further jeopardize the company’s financials, going forward. Moreover, Amdocs is investing heavily in the emerging markets to boost sales, which may lead to a drop in margins. All these activities will likely weigh on the bottom line.

The Zacks Consensus Estimate for earnings and revenues is pegged at 94 cents per share and $978 million, respectively. The estimates, when compared with the year-ago quarter’s actual figures, indicate growth of 6% for earnings and 3.9% for revenues. The stock carries a Zacks Rank #3.

Amdocs Limited Price and EPS Surprise

Amdocs Limited Price and EPS Surprise | Amdocs Limited Quote

Pegasystems, Inc. PEGA will release third-quarter results. The Zacks Consensus Estimate for earnings and revenues is pegged at 15 cents and $198 million, respectively. This indicates a year-over-year decrease of 14.7% for earnings but an increase of 7.7% for revenues. The stock carries a Zacks Rank #4 (Sell).

We expect the company’s quarterly results to be driven by an increase in new license and cloud commitments; consulting services and recurring revenues. However, currency headwinds and timing of perpetual deals are expected to weigh on revenues and margins.

Pegasystems Inc. Price and EPS Surprise

Pegasystems Inc. Price and EPS Surprise | Pegasystems Inc. Quote

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