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Will the Earnings Streak Continue for VASCO (VDSI) in Q3?

Leading security software firm VASCO Data Security International Inc.VDSI is set to report third-quarter 2015 results after the market closes on Oct 27. The cybersecurity firm has had an incredible earnings beat history. It reported a 25% positive earnings surprise last quarter, taking the four-quarter average surprise to an astounding 114.3%.

We expect the company to continue its upbeat performance in the third quarter.

Why a Likely Positive Surprise?

Our proven model shows that VASCO is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +13.04%. This is very meaningful and a leading indicator of a likely earnings surprise.

Zacks Rank: VASCO has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of VASCO's Zacks Rank #3 and +13.04% ESP makes us confident in looking for an earnings beat on Oct 27.

What's Driving the Better-Than-Expected Earnings?

VASCO's earnings have been consistently beating the Zacks Consensus Estimate by a huge margin, thanks to its broad customer base spread over more than 100 countries, and robust demand in the cybersecurity market, driven by increasingly sophisticated data breaches. Vasco's software and hardware products deliver robust, flexible and effective Internet and enterprise security solution to over 10,000 organizations in more than 100 countries.

The company is capitalizing on proliferating demand for cyber security after major corporate breaches involving the likes of Target, JPMorgan and Sony made headlines,. With the increase in online banking, VASCO is poised to gain from a huge demand for digital transaction solutions among its customer base.

During the quarter, VASCO signed an agreement to acquire Silanis Technology Inc., a leading provider of electronic signature and digital transaction solutions used to sign, send and manage documents. The deal will allow VASCO to expand its offerings to its financial service customer base and also strengthen its revenue base in North America. The acquisition will also broaden its customer base in its core banking business.

The acquisition will unlock significant revenue synergies, thus boosting VASCO's top line in the upcoming quarters.

VASCO is also gaining traction in the market as more customers implement its products. The company recently won contracts from KBC Bank, Sumitomo Mitsui Banking Corporation and Jibun Bank Corporation. These deals should boost the company's growth in the quarter under review.

VASCO has been consistently enhancing its revenues for six consecutive quarters at a phenomenal pace and is also increasing its profits and margins alongside, which stand in stark contrast to competitors like FireEye FEYE , which is sacrificing profits to achieve quick growth.

We believe the company's results will be aided by its strong order pipeline and robust demand for software security solutions. Moreover, we expect VASCO's strong operational efficiency to translate into higher margins and boost the bottom line in the upcoming results.

Other Stocks That Warrant a Look

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:

Anika Therapeutics Inc. ANIK has an Earnings ESP of +2.94% and carries a Zacks Rank #1 (Strong Buy). It is scheduled to report results on Oct 28.

Apple Inc. AAPL has an Earnings ESP of +1.60% and holds a Zacks Rank #2 (Buy). It is scheduled to report results on Oct 27.

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VASCO DATA SEC (VDSI): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

FIREEYE INC (FEYE): Free Stock Analysis Report

ANIKA THERAPEUT (ANIK): 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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