Fortinet Inc. (FTNT - Free Report) is set to report second-quarter 2017 results on Jul 26. Last quarter, the company posted a remarkable positive earnings surprise of 250%. Notably, Fortinet has outperformed the Zacks Consensus Estimate in all the trailing four quarters, with an impressive average positive earnings surprise of 139.6%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Fortinet’s network security solutions include firewall, VPN, application control, antivirus, intrusion prevention, web filtering, anti-spam and WAN acceleration.
For the last three quarters, there has been a slowdown in Fortinet’s sales. The company observed that organizations have been breaking their cybersecurity investment plans into phases and implementing the same over longer periods of time instead of making a single large investment. Therefore, the above mentioned factor is likely to affect the to-be-reported quarter revenues.
Nonetheless, we opine that Fortinet’s initiative to change its business model to subscription-based service provider will continue to drive the company’s bottom-line results. Subscription-based service is a high gross margin business (approximately 80%) compared with the hardware-centric model.
Notably, the company generates over 50% of the total revenue from these services, which helped it generate a 70 basis points gross margin expansion in first-quarter 2017. We believe that this strategy will continue to improve the company’s bottom-line performances as well.
Earnings Whispers
Our proven model does not conclusively show that Fortinet will likely 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: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 8 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Fortinet carries a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a couple of stocks, which you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:
Cypress Semiconductor Corporation , with an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Expedia, Inc. (EXPE - Free Report) , with an Earnings ESP of +16.67%, and a Zacks Rank #2.
PayPal Holdings, Inc. (PYPL - Free Report) , with an Earnings ESP of +3.13% and a Zacks Rank #2.
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It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
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Fortinet Inc. (FTNT - Free Report) is set to report second-quarter 2017 results on Jul 26. Last quarter, the company posted a remarkable positive earnings surprise of 250%. Notably, Fortinet has outperformed the Zacks Consensus Estimate in all the trailing four quarters, with an impressive average positive earnings surprise of 139.6%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Fortinet’s network security solutions include firewall, VPN, application control, antivirus, intrusion prevention, web filtering, anti-spam and WAN acceleration.
For the last three quarters, there has been a slowdown in Fortinet’s sales. The company observed that organizations have been breaking their cybersecurity investment plans into phases and implementing the same over longer periods of time instead of making a single large investment. Therefore, the above mentioned factor is likely to affect the to-be-reported quarter revenues.
Nonetheless, we opine that Fortinet’s initiative to change its business model to subscription-based service provider will continue to drive the company’s bottom-line results. Subscription-based service is a high gross margin business (approximately 80%) compared with the hardware-centric model.
Notably, the company generates over 50% of the total revenue from these services, which helped it generate a 70 basis points gross margin expansion in first-quarter 2017. We believe that this strategy will continue to improve the company’s bottom-line performances as well.
Earnings Whispers
Our proven model does not conclusively show that Fortinet will likely 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: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 8 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Fortinet carries a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a couple of stocks, which you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:
Cypress Semiconductor Corporation , with an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Expedia, Inc. (EXPE - Free Report) , with an Earnings ESP of +16.67%, and a Zacks Rank #2.
PayPal Holdings, Inc. (PYPL - Free Report) , with an Earnings ESP of +3.13% and a Zacks Rank #2.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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