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Tech Stocks Earnings Due Early Next Week: YHOO, CA & More

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The fourth quarter earnings season has begun with results from 41 S&P 500 members or 12.5% of the index’s total market capitalization already out (as of Jan 18).

Per the latest Earnings Trend report, total earnings of these 41 index members are up 11.3% year over year on the back of 3.9% higher revenues.  Beat ratios are impressive with 70.7% beating earnings estimates and 46.3% coming ahead of revenue expectations.

Overall, fourth quarter earnings for S&P 500 companies are at present expected to increase 4.7% from the year-ago quarter on revenues that are estimated to increase 3.7%.

For full year 2016, earnings for S&P 500 companies are currently expected to be down 2.2% from the year-ago quarter on revenues that are estimated to decrease 0.1%.

Growth is expected to be driven by impressive results from the Finance, Energy and Consumer Staples sector, which is anticipated to mitigate sluggish growth from the Autos, Transportation and Conglomerate sectors.

The Technology Sector

As far as the technology sector is concerned, we now have fourth quarter results from 6.1% of the sector’s total market capitalization in the S&P 500 index. So far, total earnings are up 0.5% year over year on 7.7% higher revenues, with 80% beating earnings estimates and 60% beating revenue expectations.

Earnings for the technology sector are now anticipated to be up 3.4% based on 4.3% higher revenues. Apple’s earnings are expected to decline 7.7% despite 0.4% higher revenues, which will remain a drag on the earnings of the sector. Excluding Apple, earnings are estimated to grow 7.8% on 5.4% higher revenues.

Let’s take a look at four technology stocks, which are scheduled to release their quarterly numbers next week.

Yahoo! Inc. , the troubled Internet company is slated to release its fourth quarter 2016 results on Jan 23, after the market opens.

According to our model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – to increase its odds of an earnings surprise.

Consequently, we expect the company to post an earnings beat since it carries a Zacks Rank #3 and an Earnings ESP of +7.14%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Yahoo Inc. Price and EPS Surprise

An earnings beat last quarter showed signs of a business revamp for Yahoo. Currently the company is in the process of selling its core assets to Verizon for $4.83 billion. Despite the speculation of a billion dollar discount in the purchase agreement between the parties in the wake of the data breach disclosures, Verizon has not changed any terms of the transaction. If the deal materializes, it will improve Yahoo’s cost structure. (Read More: Will Yahoo! Beat Estimates this Earnings Season?)

Notably, Yahoo has posted an average negative surprise of 60% for the last four quarters. However, last quarter, the company posted a 20% positive surprise.

We don’t expect CA, Inc. (CA - Free Report) ,a leading provider of information technology (IT) management software and solutions, to post an earnings beat when it reports third-quarter fiscal 2017 results on Jan 24 after market close.

This is because the company has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.75%. We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

CA Inc. Price and EPS Surprise

However, CA’s increased cloud exposure; a modest cash position and regular share repurchase are encouraging. It recently inked an agreement to acquire Austrian business automation software company, Automic Holding GmbH for 600 million euros ($635 million). We believe the acquisition synergies will positively impact results going forward. (Read More: CA Inc. to Report Q3 Earnings: Will it Disappoint?)

We note that CA’s results compared favorably with the Zacks Consensus Estimate in all of the last four quarters with an average beat of surprise of 7.24%.

Similarly, we don’t expect Mercury Systems, Inc. (MRCY - Free Report) , a high-tech commercial provider of secure and sensor processing subsystems, to post an earnings beat when it reports second-quarter fiscal 2017 results on Jan 23 after market close.

This is because the company’s Earnings ESP of 0.00% (Most Accurate estimate is in line with the Zacks Consensus Estimate) complicates our surprise prediction in spite of its favorable Zacks Rank #3.

Mercury Systems Inc. Price and EPS Surprise

We note that Mercury Systems results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average positive surprise of 79.05%.

We also don’t expect technology solutions company Majesco to beat earnings when it reports third-quarter fiscal 2017 results on Jan 23 after market close. This is because the company has an Earnings ESP of 0.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Majesco Price and EPS Surprise

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