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We expect Proofpoint, Inc. (PFPT - Snapshot Report) to beat expectations when it reports third-quarter 2016 results on Oct 20.

Why a Likely Positive Surprise?

Our proven model shows that Proofpoint is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (loss of 38 cents) and the Zacks Consensus Estimate (loss of 41 cents), stands at +7.32%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Note that stocks with Zacks Rank of #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement. 

The combination of Proofpoint’s Zacks Rank #3 and +7.32% ESP makes us very confident in looking for a positive surprise.

What is Driving the Better-Than-Expected Results?

Proofpoint is a leading security-as-a-service provider that focuses on cloud-based solutions for threat protection, compliance, archiving & governance, and secure communications. Organizations around the world depend on its expertise, patented technologies, and on-demand delivery system to protect against phishing, malware and spam; safeguard privacy, encrypt sensitive information, and archive and govern messages and critical enterprise information.

The demand for cyber security is on the rise. With rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.

Moreover, various independent research firms forecast strong demand ahead. According to a Markets and Markets report, worldwide cyber security spending will reach $101 billion in 2018 and $170 billion by 2020. Gartner had earlier revealed that IT security spending peaked to $75 billion in 2015. These factors should aid Proofpoint’s third-quarter results.

Moreover, it is noteworthy that Proofpoint has surpassed the Zacks Consensus Estimate in the last four quarters with an average positive surprise of 14.4%.

PROOFPOINT INC Price and EPS Surprise

Other Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited (BABA - Analyst Report) with Earnings ESP of +2.13% and a Zacks Rank #1.

Mattel, Inc. (MAT - Analyst Report) with an Earnings ESP of +1.43% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here, Inc. (AMZN - Analyst Report) with Earnings ESP of +6.98% and a Zacks Rank #1.

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