Lexmark International Inc.
) is set to report fourth quarter fiscal 2012 results on Jan 29,
before the market opens. Last quarter, it posted a 20.5% positive
surprise. Let's see how things are shaping up for this
Growth Factors This Past Quarter
The printing industry is going through tough times with the
ongoing macro softness. The sluggish economy in the U.S. as well
as the Euro zone crisis has prompted many businesses to postpone
big purchases until outlooks gain stability.
Consumers are reluctant to buy printers and so are
enterprises, which have reduced IT spending. Moreover, demand for
printers is slowing down due to increasing usage of digital
content through mobile devices.
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Last quarter, Lexmark reported an 11.2% year over year revenue
decline due to lower hardware and supplies revenues. However,
there was notable strength in its Software business, mostly led
by growth in the Perceptive Software segment.
During the quarter, unfavorable mix (higher mix of hardware) led
to margin contraction. But we believe that a mix shift toward
software and services sales could support stronger margins at
Our proven model does not conclusively show that Lexmark will
beat earnings this quarter. That is because a stock needs to have
both a positive Earnings ESP (Read:
Zacks Earnings ESP: A Better Method
) and a Zacks Rank #1, #2 or #3 for this to happen. That is not
the case here, as you will see below.
Zacks ESP: The Most Accurate estimate stands at $0.96 while the
Zacks Consensus Estimate is lower at $0.91. That is a difference
Zacks Rank #4 (Sell): Lexmark's Zacks Rank #4 (Sell) lowers the
predictive power of ESP and even when combined with a positive
ESP, makes surprise prediction difficult. We caution against
stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into
the earnings announcement, especially when the company is seeing
negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our
model shows they have the right combination of elements to post
an earnings beat this quarter:
), Earnings ESP of +14.8% and Zacks Rank #1 (Strong Buy).
), Earnings ESP of +350.0% and Zacks Rank #2 (Buy).
) has a Zacks Rank #2 (Buy) with an ESP of +1.9%.