Gigamon (GIMO) to Report Q4 Earnings: Will it Disappoint?

Gigamon Inc. GIMO is set to report fourth-quarter 2016 results on Feb 2. Last quarter, the company posted a positive earnings surprise of 23.1%. We note that Gigamon has delivered an average positive earnings surprise of 16.9% over the trailing four quarters.

Let's see how things are shaping up prior to this announcement.

Factors at Play

We believe that Gigamon's results are poised to benefit from a rapidly growing network security solutions market, which is worth more than $18 billion. The ongoing transition to cloud and fast adoption of Internet of Things (IoT) technology presents significant growth potential for the company.

We believe that product launches will continue to drive growth. The GigaSMART, GigaVUE-HC1 and GigaVUE-HC2 platforms continue to witness increased adoption. Moreover, the company is adding clients, which should bolster its financial results.

Gigamon recently posted its preliminary numbers for the fourth quarter and fiscal 2016.

The company estimates revenues in a range of $84.5-$85 million for the fourth quarter, lower than the previous guidance of $91 million to $93 million, due to lower-than-expected product bookings in the North America region. Non-GAAP earnings are anticipated to be in a range of 35-37 cents per share, again lower than the previous guidance of 36-38 cents per share.

However, non-GAAP gross margin is estimated in a range of 83% to 84% compared with the company's earlier guided range of 82% to 83%.

For 2016, Gigamon expects revenues to be approximately $310.3 million to $310.8 million, representing 40% increase on a year-over-year basis. Non-GAAP earnings are projected in a range of $1.22 to $1.25, reflecting 50% year-over-year increase. This is primarily attributable to better-than-expected market share on the back of the company's key technology, solutions and partnerships.

Non-GAAP gross margin is estimated in a range of 82% to 83% whereas non-GAAP operating margin is anticipated in a range of 22% to 23%.

Gigamon's preliminary results didn't impress investors. However, the company's year-over-year revenue and earnings comparisons for 2016 were encouraging.

Earnings Whispers

Our proven model does not conclusively show that Gigamon will beat earnings estimates this quarter. This is because 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. That is not the case here as you will see below.

Negative Zacks ESP: Its Earnings ESP is -5.56% as the Most Accurate estimate of 17 cents is pegged lower than the Zacks Consensus Estimate of 18 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter

Zacks Rank: Gigamon has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

CVS Health Corporation CVS , with an Earnings ESP of +0.60% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Moody's Corporation MCO , with an Earnings ESP of +0.89% and a Zacks Rank #3

Costco Wholesale Corporation COST , with an Earnings ESP of +0.74% and a Zacks Rank #3

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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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