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What's in Store for Netgear (NTGR) this Earnings Season?

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Netgear Inc. (NTGR - Free Report) is slated to report third-quarter 2017 results on Oct 25. The company has beaten the Zack Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 8.84%.

Last quarter, the company reported earnings of 60 cents per share, which beat the Zacks Consensus Estimate of 55 cents but declined 16.7% year over year. However, revenues of $330.7 million beat the consensus mark of $325 million and rose almost 6.1% from the year-ago quarter.

However, we note that shares of Netgear have declined 9.3% year to date, underperforming the industry‘s rally of 12.2%.

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

Factors to Consider

We expect Netgear’s strong product portfolio, comprising offerings like its Nighthawk WiFi routers, Arlo home security products and Orbi WiFI systems, to boost the top line.

In particular, we are positive about the company’s FastLane3 Technology, which apart from extending WiFi coverage will also enable higher speed. In the quarter, the company launched Nighthawk X6S and Orbi Pro solutions with the patented technology.

We believe that Arlo and Orbi sales in the retail channel will primarily drive Netgear’s results. Geographically, North America continues to be its predominant market followed by the EMEA region.

The company also expanded its product offerings in the Switch category by introducing 24-Port Gigabit PoE+ Smart Managed Pro Switch, 48-port Gigabit Smart Managed Plus Switch (GS750E) and 12-Port 10-Gigabit Ethernet Smart Managed Pro Switch (XS712Tv2).

Moreover, Netgear is also doing well in the IP camera market. Its launch of “first wire-free, ONVIF compliant IP camera”, FlexPower is also likely to drive growth.

However, the service provider business continues to pose challenges with the company streamlining the segment. The contracting gigabit switch market is a headwind. Further, declining revenues in the APAC region is also a concern.

NETGEAR, Inc. Price and EPS Surprise

NETGEAR, Inc. Price and EPS Surprise | NETGEAR, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Netgear is likely to beat on earnings 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: Netgear’s Earnings ESP is -2.94%. This is because the Most Accurate estimate of 66 cents is lower than the Zacks Consensus Estimate of 68 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Netgear carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat in their upcoming release:

Applied Materials (AMAT - Free Report) with an Earnings ESP of +0.37% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kemet Corporation (KEM - Free Report) with an Earnings ESP of +7.46% and a Zacks Rank #1.

Vishay Intertechnology (VSH - Free Report) with an Earnings ESP of +6.19% and a Zacks Rank #1.

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