Will Top-Line Growth Drive Arista's (ANET) Q3 Earnings?
Arista Networks, Inc. ANET is scheduled to report third-quarter 2018 results after the market closes on Nov 1. In the last reported quarter, the company delivered a positive earnings surprise of 12.2%. Notably, Arista has surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters with an average beat of 18.3%.
In the third quarter, the company is likely to report higher consolidated revenues on a year-over-year basis driven by healthy growth dynamics. Whether this could result in an earnings beat remains to be seen.
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, Arista’s cloud networking solutions promise predictable performance along with programmability that enables integration with third-party applications for network management, automation and orchestration. The company’s product portfolio facilitates the implementation of high-performance, highly scalable and appropriate solutions for every environment.
During the quarter, Arista enhanced the security features for private, hybrid and public cloud networking solutions to provide customers more secure and reliable options. The new offering is based on Arista Extensible Operating System (EOS) and CloudVision software. It involves three features — extended network segmentation, improved compliance through cognitive controls and new platforms with integrated encryption for wide-area interconnect. This will help enterprises reduce operational costs and alleviate threats in the evolving cloud generation ecosphere. While Arista EOS is core to the company’s cloud networking solutions for next-generation data centers and cloud networks, CloudVision is a network-wide approach for workload orchestration, workflow automation and real-time telemetry as a turnkey solution for cloud networking.
Furthermore, Arista’s decision to settle its long-pending patent litigation with rival Cisco Systems, Inc. by agreeing to pay $400 million in a binding deal is likely to immensely benefit product sales. As part of the settlement process, Arista has agreed to enforce “certain limited changes” to its user interface for operation. The deal also involves binding restrictions on both the companies and prohibits them from claiming any patent or copyright infringement on products that are available in the market for about five years. In addition, both Arista and Cisco will have to resolve any copyright and patent infringement dispute relating to new products or new features in existing product in the next three years through an arbitration process only.
Arista is well poised to benefit from strong demand for its data center switches. Moreover, continued spending on IT infrastructure products (server, enterprise storage, and Ethernet switches) for deployment in cloud environments is likely to benefit the company. Notably, Arista’s switches and routers support the high-end cloud networking market that require fast throughput at low cost. The robust product portfolio is aiding Arista win customers on a regular basis, consequently boosting top-line growth.
With solid organic growth driven by continued strength in demand curve, Arista is likely to record healthy rise in revenues. The Zacks Consensus Estimate for total revenues for the quarter is pegged at $547 million. In the year-earlier quarter the company generated revenues of $438 million.
Earnings Whispers
Our proven model conclusively shows that Arista is likely to beat earnings this quarter as it possesses 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 perfectly the case here as you will see below:
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is +2.20% with the former pegged at $1.89 and the latter at $1.85. 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. Quote
Zacks Rank: Arista has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.
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.
Other Stocks to Consider
Here are some other 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:
Windstream Holdings, Inc. WIN is slated to release quarterly numbers on Nov 8. It has an Earnings ESP of +10.79% and a Zacks Rank #3.
United States Cellular Corporation USM is likely to release results on Nov 2. The company has an Earnings ESP of +57.45% and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for CenturyLink, Inc. CTL is +10.29% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Nov 8.
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