Equinix Inc. (EQIX - Free Report) is set to report second-quarter 2017 results on Aug 2. Last quarter, the company posted a positive earnings surprise of 16.95%. Notably, the stock outperformed the Zacks Consensus Estimate over the trailing four quarters, with an average positive surprise of 20.96%.
Let's see how things are shaping up for this announcement.
Factors at Play
Equinix is a global provider of network-neutral data centers and internet exchange services for enterprises, content companies, systems integrators, and network service providers. The company operates across various geographical regions and its increasing popularity among major tech industry players looking for data management will likely drive revenues in the second quarter.
Acquisitions have been a major growth driver for Equinix and helped it expand data center capacity in many of its key markets since 2003. We anticipate the company’s buyouts of Telecity Group, Bit-isle and Nimbo, to boost the top line in the quarter.
Expansion in important markets and consolidation of facilities in existing ones have been important parts of Equinix's core strategy. We believe that the company’s focus on offering upgraded technology to attract clients will bolster its revenues and profitability in the to-be-reported quarter.
However, we remain slightly cautious about the huge capital outlays, which may dent Equinix’s second-quarter profitability. It should be noted that Equinix had cash, cash equivalents and short-term investments of $4.938 billion, while the total debt principal outstanding was $9.27 billion as on Mar 31, 2017. Growing debt burden will affect the company’s profitability in the quarter as interest expense would go up.
Moreover, increasing competition from established internet data center operators, such as AT&T (T - Free Report) , Level 3 Communications, COLT and Verizon, will affect product pricing, thereby thwarting margins.
Our proven model does not conclusively show that Equinix is likely to beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Equinix is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $3.41. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Equinix carries a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:
Salesforce.com Inc. (CRM - Free Report) , expected to release earnings on Aug 30, currently has an Earnings ESP of +11.11% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here.
Citrix Systems, Inc. (CTXS - Free Report) , slated to release earnings on Aug 2, currently has an Earnings ESP of +1.18% and a Zacks Rank #3.
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