SAP SE (SAP Quick QuoteSAP - Free Report) is slated to report third-quarter 2023 results on Oct 18.

The Zacks Consensus Estimate for revenues is pegged at $8.58 billion, implying an improvement of 8.5% from the year-ago quarter’s reported figure. The consensus mark for earnings is pegged at $1.41 per share, indicating year-over-year increase of 24.8%.

SAP reported second-quarter 2023 non-IFRS earnings of €1.07 ($1.14) per share, increasing 12% from the year-ago quarter’s levels. The Zacks Consensus Estimate was pegged at $1.26. Driven by strength in cloud business, it reported total revenues, on a non-IFRS basis, of €7.554 billion ($8.182 billion), increasing 5% year over year (up 8% at cc).

SAP SE Price and EPS Surprise

SAP SE price-eps-surprise | SAP SE Quote

Factors to Note

SAP’s performance in the to-be-reported quarter is likely to have benefited from continued momentum in cloud business. In the last reported quarter, the current cloud backlog — a key indicator of go-to-market success in cloud business — increased 21%. Our estimate for cloud revenues (on a non-IFRS basis) for the third quarter is pegged at €3.67 billion, up 23% on a year-over-year basis.

The company’s cloud efforts have received a major push from rapid adoption of Rise with SAP solution. This solution helps companies to transform their business processes and operations to become more nimble, digital and intelligent. RISE with SAP solution continues to gain significant traction and will aid the company to drive its market share in the cloud ERP solutions’ space.

The company is also likely to have gained from growing momentum in SAP Business Technology Platform and recently launched Grow with SAP solution. Grow with SAP is designed especially for midsize customers to adopt cloud ERP, and boost speed and predictability while fostering innovation.

The company’s restructuring plan is expected to better align its operating model and go-to-market approach with its accelerated cloud transformation. As part of increasing focus on cloud operations, it completed the earlier-announced sale of its entire stake in Qualtrics to Silver Lake and Canada Pension Plan Investment Board in June 2023. It had acquired Qualtrics in 2019.

However, the company’s performance is affected by continued softness in the Software license and support business segment coupled with global macroeconomic weakness and geopolitical instability. Also, increasing research & development costs, and stiff competition in the cloud space are concerns.

Recent Key Developments

On Sep 26, 2023, SAP unveiled Joule, which is an innovative AI copilot driven by natural language and generative capabilities. Joule will be released with SAP SuccessFactors solutions and SAP Start later this year, followed by integration with SAP S/4HANA Cloud, a public edition in the near future. This will be integrated into SAP’s cloud enterprise suite and offer proactive, contextual insights from the company’s solutions and third-party sources. This will likely help customers to make faster and more informed decisions while ensuring security and compliance. It will also help to transform the user experience across departments like HR, finance, supply chain, procurement and customer experience.

On Sep 7, 2023, management announced that it is set to acquire LeanIX for undisclosed financial terms. Subject to customary closing conditions and regulatory approvals, the transaction is anticipated to conclude in the fourth quarter of 2023.

LeanIX is a privately-held company engaged in providing enterprise architecture management software. It has been SAP’s partner for more than a decade. Management further added that many business organizations rely on LeanIX's solutions to accelerate digital transformation along with RISE with SAP solution. At present, LeanIX's software-as-a-service solution aids more than 1,000 clients globally to gain clarity on their IT environment and unlock full potential of business transformation efforts.

On Aug 29, 2023, management announced that it will team up with Google Cloud to introduce new generative AI-powered solutions by merging their integrated open data cloud utilizing SAP Datasphere with Vertex AI solutions.

What Our Model Says

Our proven model does not conclusively predict an earnings beat for SAP this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

SAP has an Earnings ESP of -5.16% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider as our model shows that these have the right combination of elements to beat on earnings this season.

Badger Meter (BMI Quick QuoteBMI - Free Report) has an Earnings ESP of +4.14% and currently carries a Zacks Rank #2. BMI is scheduled to report quarterly earnings on Oct 19. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BMI’s to-be-reported quarter’s earnings and revenues is pegged at 76 cents per share and $172.9 million, respectively. Shares of BMI have gained 40.9% in the past year.

Elevance Health, Inc (ELV Quick QuoteELV - Free Report) has an Earnings ESP of +0.09% and presently carries a Zacks Rank #2. ELV is slated to release quarterly numbers on Oct 18.

The Zacks Consensus Estimate for ELV’s to-be-reported quarter’s earnings and revenues is pegged at $8.45 per share and $42.53 billion, respectively. Shares of ELV have lost 4.8% of their value in the past year.

Lam Research Corporation (LRCX Quick QuoteLRCX - Free Report) has an Earnings ESP of +0.03% and a Zacks Rank #2. LRCX is set to report quarterly figures on Oct 18.

The Zacks Consensus Estimate for LRCX’s to-be-reported quarter’s earnings and revenues is pegged at $6.07 per share and $3.41 billion, respectively. Shares of LRCX have increased 104.5% in the past year

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