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Can Healthy Top-Line Growth Aid Ribbon's (RBBN) Q3 Earnings?

Ribbon Communications Inc.RBBN is scheduled to report third-quarter 2018 financial results after the closing bell on Oct 30. In the last reported quarter, the company delivered a positive earnings surprise of 600%. Notably, Ribbon surpassed the Zacks Consensus Estimate in each of the last four quarters with an average beat of 168.1%.

The company is likely to report higher revenues in the to-be-reported quarter on the back of healthy growth dynamics. Whether this can result into an earnings beat remains to be seen.

Let's find out how things are shaping up prior to the announcement.

Factors to Consider

During the third quarter, Ribbon completed the acquisition of Edgewater Networks - a market leader in Network Edge Orchestration for the distributed enterprise and Unified Communications (UC) market. The company believes that the buyout significantly advances its enterprise Edge addressable market and feature capabilities, which augment its leadership position in SBC and Cloud UC. As a result, Ribbon can offer a complete core-to-edge product portfolio, unrivaled end-to-end service assurance and analytics solutions, and SD-WAN service to a large customer base. The deal perfectly aligns with Ribbon's strategic initiatives and has allowed the company to extend Edgewater solutions internationally, expand its cloud offerings and enter the SD-WAN market.

Furthermore, Ribbon continues with its expansion initiatives in adjacent markets and related applications. The company has been focusing on Ribbon Protect and Kandy product offerings to gain market traction. During the quarter, Ribbon partnered with Over.ai to incorporate the latter's natural language voice artificial intelligence platform into its UCaaS and CPaaS offers. Notably, Over.ai is an artificially intelligent, voice-enabled platform that tackles complex tasks through listening, understanding and learning from its own environment in real time. Over.ai's capabilities were integrated into Kandy's Live Support Wrapper.

Top-Line Expansion

Ribbon is focusing on broadening its portfolio and helping customers migrate their legacy networks to the cloud in order to expand its footprint and drive revenues. The Zacks Consensus Estimate for revenues from Service , which accounts for the lion's share of total revenues, is currently pegged at $75 million, up from $30.5 million reported a year ago. For the third quarter, revenues from Product are expected to be $65 million compared with $44.1 million reported a year ago. Consequently, for the third quarter, the Zacks Consensus Estimate for total revenues stands at $141 million, up from $75 million reported in the year-earlier quarter.

Other Details

While non-GAAP gross margin from Service is expected to be $65 million, slightly down from $67 million reported a year ago, the same from Product is estimated to decline to $65 million from $82 million. Adjusted earnings per share are pegged at 13 cents, down from 26 cents reported a year ago.

What Our Model Says

Our proven model does not conclusively show that Ribbon is likely to beat earnings this quarter as it does not possess both the two 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: Ribbon's Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 13 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Ribbon Communications Inc.Price and EPS Surprise

Ribbon Communications Inc. Price and EPS Surprise | Sonus Networks, Inc. Quote

Zacks Rank: Ribbon currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company's 0.00% Earnings ESP makes surprise prediction difficult.

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:

CF Industries Holdings, Inc. CF has an Earnings ESP of +36.36% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

SS&C Technologies Holdings, Inc. SSNC has an Earnings ESP of +8.80% and a Zacks Rank #1.

Molina Healthcare, Inc. MOH has an Earnings ESP of +3.76% and a Zacks Rank #1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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