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Lexmark International Inc. (LXK - Analyst Report) is set to report fourth-quarter 2013 results on Jan 28. Last quarter, the company posted a positive earnings surprise of 3.26%. Let’s see how things are shaping up for this announcement.

Factors This Past Quarter

Lexmark reported impressive third-quarter results with both the top- and bottom lines beating the Zacks Consensus Estimate. Although the company’s guidance for the quarter was tepid, synergies from the recent acquisitions and renewed focus on the software space remain the positive factors.

It is worth noting that Lexmark is also trying to innovate in the hardware solutions segment. However, the overall macro uncertainty might affect product demand, which could impact revenues. Despite a strong market position, reduced demand for traditional printing hardware affected Lexmark’s pricing in the computer peripherals market.

Lexmark is performing impressively well in the MPS market through continuous deal wins. Though constant pricing pressure from competitors such as Canon Inc., Xerox Corp. (XRX - Analyst Report) and Hewlett-Packard Co. (HPQ - Analyst Report) and a high debt burden will be concerns, we expect Lexmark to improve its margins with increased focus on software and services.

Earnings Whispers?

Our proven model does not conclusively show that Lexmark will beat earnings this quarter. That is because a stock needs to have both a positive 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.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.09. Hence, the difference is 0.00%.

Zacks Rank #3 (Hold): Lexmark’s Zacks Rank when combined with a 0.00% 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

Another company that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter is:

Baidu, Inc. (BIDU - Snapshot Report), with Earnings ESP of +7.09% and a Zacks Rank #1 (Strong Buy).

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