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Software Stocks Earnings Slated on Oct 20: MSFT, PYPL & More

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The third-quarter 2016 earnings season has begun. Growth trends are however not encouraging enough, particularly due to weakness in the energy and technology sector.

As per the latest Zacks Earnings Preview  report, overall third-quarter earnings for S&P 500 companies are expected to be down 2.2% from the year-ago quarter on a 1.5% increase in revenues.

Earnings for the Technology sector are anticipated to be down 1.7% on 1.1% lower revenues. Apple’s guidance, which projects an earnings decline of 20.6% on 9.6% lower revenues, will likely be a major overhang on the sector's earnings. Excluding Apple, earnings are estimated to grow 3%.

This week, we will see earnings releases from more than 244 companies, out of which 80 are S&P 500 members.

Here is a sneak peek into four software companies lined up to report earnings on Oct 20.

Software giant Microsoft Corporation (MSFT - Free Report) is unlikely to post a beat in its first quarter of fiscal 2017, given the unfavorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%.

This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 to beat earnings. Conversely, we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Microsoft’s business reorganization and “cloud-first mobile-first” focus are encouraging. Moreover, enterprise strength, the Office 365 subscription model, Azure and promising new products will continue to generate sizeable cash flows with Windows 10 helping maintain consumer share this year and driving enterprise growth in 2016. Additionally, the expansion of Microsoft HoloLens in six new markets will improve the company's position in the augmented and virtual reality space.

MICROSOFT CORP Price and EPS Surprise

MICROSOFT CORP Price and EPS Surprise | MICROSOFT CORP Quote

We note that the company’s results compared favorably with the Zacks Consensus Estimate in three out of the last four quarters, with an average beat of 11.49%. (Read More: What's in the Cards for Microsoft in Q1 Earnings?)

PayPal Holdings, Inc. (PYPL - Free Report) is a technology platform offering online payment solutions. This company is also unlikely to post a beat in third-quarter 2016 due to the combination of its Zacks Rank #4 and an Earnings ESP of 0.00%.

However, the company is focusing on its core capabilities and operating with greater flexibility for success in the digital payments space. Its foray into mobile payments with the Braintree acquisition and its One Touch system reflects the same. The company has also signed a few strategic agreements to expand the acceptance of PayPal payments system among new clients and businesses.

PAYPAL HOLDINGS Price and EPS Surprise

PAYPAL HOLDINGS Price and EPS Surprise | PAYPAL HOLDINGS Quote

We note that Paypal’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 7.32%. (Read More: What to Expect When PayPal  Reports Q3 Earnings?).

DST Systems, Inc. (DST - Free Report) provides sophisticated information processing and computer software services and products that help clients improve productivity, increase efficiencies, and provide higher levels of customer service.

The company is unlikely to post a beat in the third-quarter 2016 due to the combination of its Zacks Rank #3 and Earnings ESP of 0.00%.

We expect steady contributions from acquisitions to support revenue growth. Continued share buybacks and dividend payments are the other encouraging factors.

DST SYSTEMS Price and EPS Surprise

DST SYSTEMS Price and EPS Surprise | DST SYSTEMS Quote

We note that DST’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 7.79%. (Read More: Will DST Systems Pull Off a Surprise in Q3 Earnings?)

Security and compliance company Proofpoint, Inc. (PFPT - Free Report) is expected to beat third-quarter 2016 earnings estimates as it has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +7.32%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Its recent acquisition of the email fraud protection unit from Return Path augurs well for the company. It will strengthen Proofpoint’s suite of solutions related to e-mail protection and enhance its capabilities to combat business e-mail threats better.

PROOFPOINT INC Price and EPS Surprise

PROOFPOINT INC Price and EPS Surprise | PROOFPOINT INC Quote

We note that Proofpoint’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 14.42%. (Read More: Is a Surprise Coming for Proofpoint (PFPT - Free Report) This Earnings Season?)

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