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Will SAP AG (SAP) Disappoint This Earnings Season? - Analyst Blog

Posted: 4/14/2014 9:50:00 AM
Referenced Stocks: DSGX;INVN;RST;SAP

SAP AG ( SAP ) is set to report first-quarter 2014 results on Apr 17. Last quarter, it posted a 1.89% positive surprise. Let's see how things are shaping up for this announcement.

Growth Factors This Past Quarter

The first quarter seemed promising for the company as it announced a strategic acquisition with Fieldglass, cloud-based vendor management system (VMS) solution provider. With this acquisition, SAP will be able to help employers manage flexible workforce that can be quickly employed and engaged to support rapidly changing business and customer needs. Further, during the first quarter, SAP also announced an 18% dividend increase to €1.00 per share. This apart, the company's cloud business and its core software solutions business have been key catalysts, driving double-digit growth for the company.  

Along with its fourth-quarter earnings, the company provided its mid-term 2014 guidance. SAP expects the combination of a stable, highly profitable core and fast-growing cloud business to deliver continued growth and lead to margin expansion. The company aims to further increase its total revenue to at least €20 billion and total revenue from its cloud business including cloud-related professional services to approximately €2 billion by 2015.

Earnings Whispers?

Our proven model does not conclusively show that SAP is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  That is because the Most Accurate estimate stands at $0.61 while the Zacks Consensus Estimate is higher at $0.62. That is a difference of -1.61%.

Zacks Rank : Sap's Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #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:  

The Descartes Systems Group Inc. ( DSGX ), with Earnings ESP of 20.00% and Zacks Rank #2  (Buy).

Rosetta Stone, Inc. ( RST ), with Earnings ESP of 50.00% and Zacks Rank #2.

InvenSense, Inc. ( INVN ), with Earnings ESP of 28.6% and Zacks Rank #2.

DESCARTES SYS (DSGX): Free Stock Analysis Report

INVENSENSE INC (INVN): Free Stock Analysis Report

ROSETTA STONE (RST): Free Stock Analysis Report

SAP AG ADR (SAP): Free Stock Analysis Report

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