Santa Clara, CA-based Chegg, Inc. (CHGG Quick QuoteCHGG - Free Report) is set to report second-quarter 2016 on Aug 1, after the market closes.

Last quarter, the company had posted in-line results. Notably, Chegg surpassed estimates in three out of the past four quarters with an average positive surprise of 102.29%.

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

Factors to Consider this Quarter

As a student-first connected learning platform Chegg has two revenue streams – digital and print. Interestingly, Chegg started the process of transitioning into an all-digital business through its textbook partnership with Ingram during the first quarter. This is expected to boost enrollment in the to-be-reported quarter as modern students are more comfortable with online tuition than the traditional form.

Further, during the fourth quarter of 2015, Chegg had undertaken an initiative to respond to 85% of students requesting for a tutor within five minutes. This increased the number of students as well as tutors in the first quarter 2016 and the trend is expected to continue in the second quarter as well.

However, the company has incurred losses in the last few quarters and the trend is unlikely to reverse in the to-be-reported quarter. Moreover, its transformation into an all-digital business may result in higher costs, which in turn, may adversely affect margins in the near term.

Earnings Whispers

Our proven model does not conclusively show that Chegg is likely to 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. However, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as the Most Accurate and the Zacks Consensus Estimate both stand at a loss of 9 cents.

Zacks Rank: Chegg currently carries a Zacks Rank #3 (Hold). However, a 0.00 ESP makes prediction difficult.

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

Stocks to Consider

Here are some companies in the wider computer and technology sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Analog Devices Inc. (ADI Quick QuoteADI - Free Report) with an Earnings ESP of +5.41% and a Zacks Rank #3.

Digital Turbine Inc. (APPS Quick QuoteAPPS - Free Report) with an Earnings ESP of +12.50% and a Zacks Rank #3.

CDK Global Inc. with an Earnings ESP of +4.26% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>