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Will Demand Volatility Hurt Q2 Earnings of Arista (ANET)?

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Arista Networks, Inc. (ANET - Free Report) is scheduled to report second-quarter 2020 results after the closing bell on Aug 4. In the last reported quarter, the company delivered an earnings surprise of 12.8%, surpassing the Zacks Consensus Estimate by 23 cents. In the second quarter, the company is likely to have generated lower consolidated revenues on a year-over-year basis due to volatility in demand amid the coronavirus pandemic.

Factors at Play

During the second quarter, Arista introduced an updated Cognitive WiFi software that offers intelligent application identification, performance optimization, automated troubleshooting and location services. This enhanced WiFi solution with critical video collaboration applications and cloud-based AI support for rapid problem resolution is likely to have translated into incremental revenues for the company in the quarter.

The company also launched switches Powered by SONiC (Software for Open Networking in the Cloud) that runs on multiple hardware platforms. Open networking enables operators to customize operating environments for serviceability, availability and scale, with a uniform workflow for development, testing and deployment of differentiated services. This, in turn, is likely to be reflected in the upcoming quarterly results.

However, the volatility in the cloud business is likely to have continued in the second quarter due to an overall muted demand picture. Although enterprise and financial verticals are expected to have witnessed healthy growth, these are unlikely to fully offset the expected revenue decline from cloud, service provider and specialty cloud businesses. Consequently, overall revenues are likely to have declined in the to-be-reported quarter.

Moreover, management expected to witness no direct impact from the virus outbreak owing to prudent financial management and portfolio strength. However, supply-chain mechanisms are likely to have weighed on the overall quarterly performance.

For second-quarter 2020, the company projects revenues of $520-$540 million. The Zacks Consensus Estimate for the same is pegged at $530 million, indicating a 12.8% decline from the year-ago quarter’s reported number. The consensus mark for earnings is currently pegged at $1.97 per share. It reported earnings of $2.44 per share in the year-earlier quarter.

Earnings Whispers

Our proven model predicts an earnings beat for Arista this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +3.28%, with the former being pegged at $2.03 and the latter at $1.97. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Arista Networks, Inc. Price and EPS Surprise

Arista Networks, Inc. Price and EPS Surprise

Arista Networks, Inc. price-eps-surprise | Arista Networks, Inc. Quote

Zacks Rank: Arista currently has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Watts Water Technologies, Inc. (WTS - Free Report) is set to release quarterly numbers on Aug 3. It has an Earnings ESP of +18.38% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for InterDigital, Inc. (IDCC - Free Report) is +4.28% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Aug 6.

The Earnings ESP for Maxar Technologies Ltd. (MAXR - Free Report) is +31.71% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Aug 5.

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