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Model N (MODN): Stock to Pull a Surprise in Q3 Earnings?

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Model N, Inc. (MODN - Free Report) is scheduled to report third-quarter fiscal 2016 results on Aug 8. Last quarter, the company posted a positive earnings surprise of 13.89%. Notably, the stock has outperformed the Zacks Consensus Estimate in all of the preceding four quarters with an average positive earnings surprise of 7.82%.

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

Factors to Consider

Model N provides revenue management solutions for the life science and technology industries. It develops applications such as managed care and government pricing for life science companies and channel incentives based on design wins for technology companies.

The company reported strong year-over-year growth in revenues (up 14.9%) in the second quarter of fiscal 2016. Reported revenues were also in line with the Zacks Consensus Estimate. Coming to the bottom line, although the company posted a loss of 31 cents for the quarter, it was narrower than the Zacks Consensus Estimate of a loss of 36 cents.

We are optimistic about the company’s strategic acquisitions, product launches and deal wins, which should positively impact fiscal third-quarter results. However, pricing pressure caused by stiff competition from SAP SE (SAP - Free Report) , I-Many Inc. and Symphony Teleca Corp. may impact profitability in the to-be-reported quarter.

MODEL N INC Price and EPS Surprise

MODEL N INC Price and EPS Surprise | MODEL N INC Quote

Earnings Whispers

Our proven model does not conclusively show that Model N 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. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Model N is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 31 cents.

Zacks Rank: Model N currently 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 stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are a couple of companies that are worth considering as our model shows that they have the right combination of the two elements needed to post an earnings beat:

Analog Devices Inc. (ADI - Free Report) , with an Earnings ESP of +2.63% and a Zacks Rank #2.

Alibaba Group Holding Ltd. (BABA - Free Report) , with an Earnings ESP of +28.95% and a Zacks Rank #3.

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