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Can Top-Line Improvement Buoy Arista (ANET) Q4 Earnings?

Supriyo Bose

Arista Networks, Inc. ANET is scheduled to report fourth-quarter 2018 results after market close on Feb 14. In the last reported quarter, the company delivered a positive earnings surprise of 14.1%. Notably, Arista surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, the average beat being 13.4%.

For the fourth 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.

Arista’s strategy of leveraging merchant silicon from multiple suppliers has expanded product portfolio and increased its ability to offer products at cheaper prices. This has also helped it to focus on developing software like EOS (Extensible Operating System) and CloudVision. While 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. In addition, EOS’s fully programmable and highly modular architecture has been the key differentiator. We believe that new products like containerized EOS and DANZ Hybrid Cloud containerization will further expand its market share in 2019 and beyond.

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 the company to win customers on a regular basis, boosting its top line.

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 $589 million. In the year-earlier quarter, the company generated revenues of $468 million.

Earnings Whispers

Our proven model 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 the Zacks Consensus Estimate, is +2.72%. This because the Most Accurate Estimate is pegged at $2.10 and the Zacks Consensus Estimate stands at $2.04. 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:

GTT Communications, Inc. GTT is slated to release quarterly numbers on Feb 28. It has an Earnings ESP of +173.53% and a Zacks Rank #2.

CommScope Holding Company, Inc. COMM is scheduled to release results on Feb 21. The company has an Earnings ESP of +6.05% and has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ciena Corporation CIEN is expected to release quarterly numbers in early March. It has an Earnings ESP of +1.70% and a Zacks Rank #2.

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