What's in the Cards for Square (SQ) this Earnings Season?

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Square, Inc.SQ is set to report fourth-quarter 2016 results on Feb 22. The company is a leading provider of payment processing, point-of-sale (POS), and marketing services worldwide. It completed its initial public offering (IPO) in Nov 2015. Last quarter, the company posted 18.18% positive earnings surprise.

For the last one year, the stock has outperformed the Zacks Internet - Software industry. It gained 41.8% compared with the industry's gain of 20.1%.

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

Factors at Play

Strong Growth: In the third quarter of 2016, Square's core payments business was strong and witnessed growth. Gross payment volume (GPV) was $13.2 billion, a significant 39% increase on a year-over-year basis. Net revenue was 439 million, up 32% year over year.

Software and Data: Caviar and Capital continue to drive growth in this segment. Contributions from instant deposits have picked up pace and are expected to transform to a real growth driver in the fourth quarter. Square continues to innovate with its software and services to enhance their accessibility in both existing and potential markets.

Square Capital: Square recently partnered with Upserve to provide the latter's customers access to quick, and flexible funding for their restaurants through Square Capital. This partnership along with the capacity of adding new investors has ample growth prospects.

Q4 Guidance: The company expects adjusted revenues to be anywhere between $182 million and $185 million, and adjusted EBITDA between $16 million and $18 million. That's a 14 point year-over-year margin improvement at the midpoint.

Square, Inc. Price and EPS Surprise

Square, Inc. Price and EPS Surprise | Square, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Square will beat 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.

Zacks ESP : Both the Most Accurate Estimate and Zacks Consensus Estimate stand at a loss of 9 cents, Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Square has a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

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.

Stocks to Consider

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

Dollar Tree Inc. DLTR , expected to release earnings around Mar 7, has an Earnings ESP of +0.75% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

ARRIS International plc ARRS , expected to release earnings around Feb 22, has an Earnings ESP of +1.56% and carries a Zacks Rank #2.

Costco Wholesale Corp. COST , expected to report earnings on Mar 2, currently has an Earnings ESP of +0.74% and a Zacks Rank #3.

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Square, Inc. (SQ): Free Stock Analysis Report

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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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