With the earnings season drawing to a close, we now have a fair idea of the market performance. There is little left that can change the scenario. To be honest, it hasn't been a very great quarter with growth concerns looming large over a number of key sectors including technology, which has traditionally remained immune to most macroeconomic disruptions.
But this time around, even with low expectations, the tech sector has delivered a subpar performance. As of May 4, first quarter results from approximately 88.5% of the sector's total market capitalization in the S&P 500 index are out. On a consolidated basis, earnings from these companies have declined 5.6% year over year despite the fact that revenues grew 1% in the quarter.
However, an important thing to note about the tech space is that stock price response to earnings has been the most pronounced. In fact, the average one-day negative stock price reaction has been maximum in this sector. But at the same time, there have been decent gains following a positive earnings announcement.
Within the tech sector, let's have a closer look at a few software stocks like CA, Inc. CA , Trend Micro Inc. TMICY , NetEase, Inc. NTES and Rapid7, Inc. RPD which are scheduled to make their quarterly announcements on May 11.
CA, Inc., a leading information technology (IT) management software company, has an impeccable earnings record so far with an average positive earnings surprise of 7.3% in the trailing four quarters. Moreover, this Zacks Rank #3 (Hold) company has been undertaking initiatives like portfolio expansion and improving its sales strategy to drive growth. However, the company has a 0.00% Earnings ESP , which makes it difficult to conclusively predict an earnings beat this quarter. (Read: Can CA Inc. Keep the Earnings Streak Alive in Q4? )
NetEase, Inc., a prominent Internet technology company, has also performed above expectations historically. In the trailing four quarters, the company recorded an average positive earnings surprise of 18.26%. This Zacks Rank #3 company has a 0.00% ESP as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $2.31.
Trend Micro Inc., a software company providing endpoint, messaging and web security solutions, also has a Zacks Rank #3 and a 0.00% ESP. But it's important to note that the company has had a not-so-great earnings history, with the bottom line missing estimates thrice in the trailing four quarters. It has an average four-quarter negative surprise of 15.52%. In fact, in the last quarter, the company's earnings came in 40.48% below the Zacks Consensus Estimate.
Rapid7, Inc. which is known for its security data and analytics offerings, beat earnings estimates in one quarter while falling short of expectations in two of the trailing three quarters. It is still not profitable. Moreover, this Hold-rated stock has an Earnings ESP of 0.00%, which makes it difficult to predict a beat.
The software space is relatively stable within the technology space, given consistently increasing demand. But even if things take a turn for the worse, there are always a few picks which are able to make their way to safe harbor even through choppy seas.