Markets

Key Predictions for Earnings Reports of CA, CTXS & FFIV

The technology sector is poised to hog the spotlight as we head into the busiest week of the Q3 earnings cycle.

According to the latest Zacks Earnings Preview , 87 S&P 500 members or 24.7% of the index's total membership have reported quarterly results as of Oct 20. Of these, approximately 71.3% of the companies posted positive earnings surprises, while 70.1% beat top-line expectations. Earnings of these companies grew 9.4% from the comparable period last year, while revenues were up 7.3%.

The trend this earnings season indicates that we will finally see back-to-back five quarters of earnings growth after five straight quarters of decline. The report projects that earnings for the S&P 500 index will improve 2.6% from the year-ago period, while total revenues will be up 5%.

Tech Stocks Continue to Outperform

Technology is one of the four sectors which are expected to report strong earnings growth in the third quarter. The other three are Oil/Energy, Industrial Products and Construction.Various technology giants, including Alphabet GOOGL , Microsoft MSFT and Amazon AMZN , are scheduled to report quarterly numbers this week. Per the report, total earnings for the tech sector are projected to be up 9.9% on 7.1% higher revenues for the third quarter.

We note that the technology sector has been a strong performer on a year-to-date basis. The sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.

Not All Companies Poised to Shine

Though the overall tech sector is poised to shine in the quarter to be reported, this does not ensure earnings beat for all companies in the space. It should be noted that a company's earnings outperformance is dependent on the overall business environment as well as management's ability to implement operating and strategic plans.

In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.

Notably, our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP , the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Let's See How CA, CTXS and FFIV are Placed

CA Inc. 's CA second-quarter fiscal 2018 results seem to benefit from its acquisition and sales strategies. Acquisitions have been one of the key strategies of CA to enhance its IT management, software and services portfolio. Acquisitions have fortified its position in virtualization, automation, assurance in the cloud computing environment. We believe the diversity of the company's products and increased efficiency offered by such buyouts will entice customers across sectors, lending stability to its business model. Furthermore, CA's "go to market" sales strategy helps generate sales while simultaneously slashing costs. However, heightening competition from Oracle, International Business Machines and HP Inc., as well as adverse currency translations continue to be hurdles, and are expected to dent margins and sales in fiscal 2018. (Read: Buyout & Sale Strategies to Drive CA Inc's Q2 Earnings )

Notably, the company's earnings have outpaced the Zacks Consensus Estimate by an average of 7.6% in the trailing four quarters. CA has an Earnings ESP of 0.00% and carries a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

CA Inc. Price and EPS Surprise

CA Inc. Price and EPS Surprise | CA Inc. Quote

Further, the Zacks Consensus Estimate of 62 cents for the fiscal second quarter has remained unchanged in the last 30 days. The Consensus Estimate for the company's revenues is pegged at $1.05 billion for the to-be-reported quarter, up 3.2% from second-quarter fiscal 2017.

Let's take a sneak peek at Citrix Systems Inc.CTXS , which is scheduled to report third-quarter 2017 results on Oct 25. Things do not look bright for the company in the quarter under review. Citrix has an Earnings ESP of -0.57% and carries a Zacks Rank #4 (Sell). Also, the Zacks Consensus Estimate of $1.04 for the third quarter remained unchanged in a month's time.

Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Revenues from products and licenses are expected to be soft in the quarter under review, in turn, hurting the top line. However, revenues from Software-as-a-Service (SaaS) are likely to be strong in the quarter. The Zacks Consensus Estimate for the company's total revenues is pegged at $691.2 million for the third quarter, down 17.8% from the prior-year quarter.

Furthermore, we expect escalating costs to hurt the company's bottom line in the third quarter. With the company making significant investments to expand its product portfolio, costs are likely to flare up. Personnel expenses are expected to shoot up as well, hurting the bottom line. In addition to this, Citrix System's results in the to-be-reported quarter are liable to be affected by foreign exchange movements as it continues to foray into non-U.S. markets. (Read: Will High Costs Mar Citrix Systems' Q3 Earnings? )

Citrix Systems, Inc. Price and EPS Surprise

Citrix Systems, Inc. Price and EPS Surprise | Citrix Systems, Inc. Quote

Lastly, F5 Networks, Inc.FFIV , a developer and provider of software defined application services, is set to report fourth-quarter fiscal 2017 results this Wednesday. The company has a mixed surprise history, surpassing the Zacks Consensus Estimate twice in the trailing four quarters, missing in one occasion and matching in the other. Nevertheless, it has an average positive earnings surprise of 2.6%.

It seems that in the fiscal fourth quarter, the company's earnings will miss the Consensus Estimate as it has an ESP of -0.93% and Zacks Rank #4. The Zacks Consensus Estimate for revenues and earnings are pegged at $536.8 million and $2.20, respectively

F5 Networks, Inc. Price and EPS Surprise

F5 Networks, Inc. Price and EPS Surprise | F5 Networks, Inc. Quote

The company's top- and bottom-line performances are expected to be adversely affected by volatile spending atmosphere and competitive threats. Cisco Systems poses the most significant competitive threat to F5 Networks, given the dominance of the former in the overall networking market. Additionally, Citrix Inc., Juniper Networks, Checkpoint Systems, and Barracuda Networks also have strong technology platforms that could pose significant competitive threat on improved execution. (Read: Factors Likely to Decide F5 Networks' Fate in Q4 Earnings )

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Alphabet Inc. (GOOGL): Free Stock Analysis Report

F5 Networks, Inc. (FFIV): Free Stock Analysis Report

Microsoft Corporation (MSFT): Free Stock Analysis Report

CA Inc. (CA): Get Free Report

Citrix Systems, Inc. (CTXS): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

In This Story

FFIV GOOGL MSFT AMZN

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More