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Yahoo Inc. (YHOO - Analyst Report) is set to report third-quarter 2013 results on Oct 15. Last quarter, it posted a 15.38% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Yahoo’s second-quarter earnings exceeded the Zacks Consensus Estimate by 5 cents driven by its equity holdings in Alibaba and Yahoo Japan. However, GAAP revenues of $1.14 billion were down sequentially as well as year over year. Margins expanded both sequentially as well as from the year-ago quarter due to solid expense management and a favorable mix.

Yahoo provided a tepid outlook for the third quarter, with revenues expected to be within $1.12-1.17 billion, adjusted EBITDA of $330-$350 million and operating income of $165-$185 million.

Earnings Whispers?

Our proven model does not conclusively show that Yahoo will beat earnings this quarter. That is because a stock needs to have both a positive earnings expected surprise prediction or Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  The Most Accurate estimate stands at 24 cents while the Zacks Consensus Estimate is higher at 27 cents. That is a difference of -11.11%.

Zacks Rank #3 (Hold): Yahoo’s Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

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

Jarden Corp. (JAH - Snapshot Report), with Earnings ESP of +1.00% and a Zacks Rank #1 (Strong Buy).

Micron Technology Inc. (MU - Analyst Report), with Earnings ESP of +4.35% and a Zacks Rank #1 (Strong Buy).

Lithia Motors Inc. (LAD - Snapshot Report), with Earnings ESP of +2.73% and a Zacks Rank #2 (Buy).

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