Per the latest Earnings Outlook, the Q2 earnings season has crossed the half-way mark already, with 286 of the S&P 500 members or 68.8% of total market capitalization having reported quarterly results till Jul 28.
Out of the companies that have reported their quarterly numbers, approximately 74.5% posted positive earnings surprises, while 69.2% beat top-line expectations. According to the report, earnings of these companies are up 11.3% from the same period last year, while revenues have increased 6.1%.
The trend this earnings season indicates that we will finally see back-to-back four quarters of earnings growth after five straight quarters of decline. The report projects that earnings for the S&P 500 index will improve 9.2% from the year-ago period, while total revenue will be up 5%.
The earnings reporting cycle for the second quarter is in full swing, with results of over 1000 companies, including 130 S&P 500 members scheduled to be out this week. Out of these, a number of tech companies are slated to report quarterly figures over the next few days. So far, the earnings scenario for the overall sector has been pretty impressive.
Technology Stocks Continue to Outperform
Although the Q2 earnings growth is broad based, majority of the contribution is coming from three sectors, Technology being one among them. The other two solid performing sectors are Finance and Energy.
Per the latest Earnings Outlook, 66.1% of the sector’s market cap in the S&P 500 index has already reported, as of Jul 28. According to the report, approximately 87.1% of the companies delivered positive earnings surprises, while the same percentage of companies beat top-line expectations. Earnings of these companies are up 18.8% from the same period last year, while revenues increased 8.4%.
We note that the technology sector has been a strong performer on a year-to-date basis. The sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.
However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment, as well as management’s ability to implement operating and strategic plans.
In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.
Let’s see what’s in store for these software stocks, all of which are scheduled to release quarterly numbers on Aug 2.
CA Inc. (CA - Free Report) is likely to beat first-quarter fiscal 2018 expectations as it has a favorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of +4.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
This is because, as per our proven model, a company needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 to deliver an earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.
We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
The Zacks Consensus Estimate for the quarter is pegged at 50 cents. Last quarter, the company delivered a positive earnings surprise of 8.9%. Notably, CA outperformed the Zacks Consensus Estimate thrice and matched in one occasion, over the trailing four quarters, with an average positive surprise of 6.2%. Shares of CA have lost 2.3% year to date, significantly underperforming the industry’s 21.9% rally. (Read more: CA Inc. to Report Q1 Earnings: A Beat in the Cards?)
Symantec Corporation (SYMC - Free Report) is also likely to beat first-quarter fiscal 2018 expectations as it has an Earnings ESP of +16.67% and a Zacks Rank #2. The Zacks Consensus Estimate for the quarter is pegged at 12 cents. Last quarter, the company posted a negative earnings surprise of 75%. Notably, Symantec has a mixed record of earnings surprises in recent quarters. The stock has outperformed the Zacks Consensus Estimate twice, missed in the other and came in line with another, over the trailing four quarters. It has an average negative earnings surprise of 13.8%. However, Symantec’s stock has gained 29.7% year to date, substantially outperforming the 21.9% rally of the industry it belongs to. (Read more: Symantec to Report Q1 Earnings: Is a Beat in Store?)
Similarly, Citrix Systems, Inc. (CTXS - Free Report) is another computer-software company which is likely to surpass second-quarter 2017 expectations as it has an Earnings ESP of +1.18% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at 85 cents. Last quarter, the company posted a positive earnings surprise of 13.3%. Notably, Citrix Systems has outperformed the Zacks Consensus Estimate over the trailing four quarters, with an average positive surprise of 12.2%. However, Shares of Citrix Systems have lost 11.5% year to date, significantly underperforming the industry’s 22% rally. (Read more: Is Citrix Systems Likely to Beat this Earnings Season?)
However, Ansys, Inc. (ANSS - Free Report) does not seem poised to beat second-quarter 2017 expectations despite having a positive Earnings ESP, as the stock has a Sell rating. Ansys has an Earnings ESP of +1.19%, but carries Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the quarter is pegged at 84 cents. Last quarter, the company pulled off a positive earnings surprise of 5.2%. Notably, Ansys outperformed the Zacks Consensus Estimate over the trailing four quarters, generating an average positive surprise of 3.9%. The stock has gained 41% year to date, substantially outperforming the 21.9% rally of the industry it belongs to. (Read more: ANSYS to Report Q2 Earnings: What's in the Cards?)
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