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Will Baidu (BIDU) Disappoint Q3 Earnings Estimates?

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Baidu, Inc. (BIDU - Free Report) is set to report the third-quarter 2014 results on Oct 29. Last quarter, the company posted a 31.5% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Baidu’s second-quarter earnings of $1.63 significantly beat the Zacks Consensus Estimate by 39 cents. However, revenues were up sequentially as well as year over year, driven by solid growth in mobile business. Operating margins also expanded sequentially and year over year due to higher gross margins.

Baidu’s strong dominance in the mobile search market and continuous efforts to develop new products will help it to continue to gain market share. Moreover, Baidu, through recent agreements with IndoorAtlas Ltd. and Seagate Technology, continues to strengthen its offerings in China, where it is pitted against the country’s biggest e-Commerce operator, Alibaba Group Holding Limited.

For the third quarter, management expects revenues in the range of RMB13.420 billion ($2.163 billion) to RMB13.780 billion ($2.221 billion), representing an increase of 50.9–55% from the year-ago quarter.

Earnings Whispers?

Our proven model does not conclusively show that Baidu will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Most Accurate estimate stands at $1.55 while the Zacks Consensus Estimate is higher at $1.62. That is a difference of -4.32%.

Zacks Rank: Baidu’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank such as:

AmSurg Corp. , with an Earnings ESP of +18.52% and a Zacks Rank #1 (Strong Buy).

Gentherm Incorporated (THRM - Free Report) , with an Earnings ESP of +4.65% and a Zacks Rank #1.

AMAG Pharmaceuticals, Inc. (AMAG - Free Report) , with an Earnings ESP of +25.00% and a Zacks Rank #1.

In-Depth Zacks Research for the Tickers Above

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Baidu, Inc. (BIDU) - free report >>

AMAG Pharmaceuticals, Inc. (AMAG) - free report >>

Gentherm Inc (THRM) - free report >>

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