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Will Top-Line Growth Drive Arista's (ANET) Q1 Earnings?

Zacks Equity Research

Arista Networks, Inc. ANET is scheduled to report first-quarter 2019 results after the closing bell on May 2. In the last reported quarter, the company delivered a positive earnings surprise of 10.3%. Notably, Arista surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, the average beat being 11.4%.

For the first 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, its 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. These positives are expected to benefit its upcoming results.

During the first quarter, Arista launched the 7130L Series, an enhanced ultra-low latency and high-precision network application platform, for better configurability. The product is optimized for a range of its network applications and can be leveraged to run third-party partner applications. Notably, the 7130L Series integrates field-programmable gate array-based network applications, MetaMux and MetaWatch, for combining time-stamped packets for data analysis. It makes custom applications easy to deploy. We believe that such innovative product offerings will further expand its market share, and augment revenues.
    
With solid organic growth driven by continued strength in demand curve, Arista is likely to record healthy rise in revenues. The company expects first-quarter revenues in the range of $588 million to $598 million. The Zacks Consensus Estimate for the same is pegged at $594 million. In the year-earlier quarter, the company generated revenues of $472 million.

Earnings Whispers

Our proven model does not show that Arista is likely to beat earnings this quarter as it does not possess 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 not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.07. 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. price-eps-surprise | Arista Networks, Inc. Quote

Zacks Rank: Arista has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have positive ESP to make us 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.

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:

Molina Healthcare, Inc. MOH has an Earnings ESP of +3.49% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

PotlatchDeltic Corporation PCH has an Earnings ESP of +9.81% and a Zacks Rank #2.

The Earnings ESP for Werner Enterprises Inc. WERN is +0.91 % and it carries a Zacks Rank of 3.

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