We are in the last stretch of the Q2 earnings season, with 420 S&P 500 members or 86.7% of the index’s total membership having already reported their quarterly results, as of Aug 4, according to the latest Zacks Earnings Preview.
Out of the companies which have reported their quarterly numbers, approximately 74.3% posted positive earnings surprises, while 68.3% beat top-line expectations. According to the report, earnings of these companies are up 11.6% from the same period last year, while revenues have increased 5.6%.
The trend this earnings season clearly 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 10% from the year-ago period, while total revenue will be up 5.1%.
Results of over 700 companies, including 35 S&P 500 members, are 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 Preview, 86.2% of the sector’s market cap in the S&P 500 index has already reported, as of Aug 4. According to the report, approximately 82.6% of the companies delivered positive earnings surprises, while 87% of the companies beat top-line expectations. Earnings of these companies are up 16.5% from the same period last year on 7.6% higher revenues, mainly driven by solid performance of tech heavyweights such as Facebook (FB - Free Report) , Apple (AAPL - Free Report) and Alphabet (GOOGL - Free Report) .
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 an 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 tech stocks, all of which are scheduled to release quarterly numbers on Aug 10.
NVIDIA Corporation (NVDA) is unlikely to beat second-quarter fiscal 2018 expectations as it has an unfavorable combination of a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%. 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 or at least 3 (Hold) 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 69 cents. Last quarter, the company posted a positive earnings surprise of 24.24%. Notably, NVIDIA has an impressive earnings surprise history, outperforming the Zacks Consensus Estimate over all the trailing four quarters, with an average positive earnings surprise of 27.01%. Shares of NVIDIA have gained 59.6% year to date, considerably outperforming the 17.9% rally of the industry it belongs to. (Read more: NVIDIA to Report Q2 Earnings: What's in the Cards?)
Similarly, Paylocity Holding Corporation (PCTY - Free Report) is unlikely to surpass the fourth-quarter fiscal 2017 expectations as it has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at a loss of 10 cents. Last quarter, the company posted positive earnings surprise of 133.33%. Notably, Paylocity outperformed the Zacks Consensus Estimate in each of the trailing four quarters, generating an average positive surprise of 66.97%.Shares of Paylocity have returned 46.3% year to date, outperforming the industry’s 17.2% gain. (Read more: What's in the Offing for Paylocity in Q4 Earnings?)
Snap Inc. (SNAP - Free Report) is another company which does not seem poised to beat second-quarter 2017 expectations despite having a positive Earnings ESP, as the stock has a Sell rating. Snap has an Earnings ESP of +3.45%, but carries a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the quarter is pegged at a loss of 29 cents. Last quarter, the company posted a positive earnings surprise of 0.86%. Shares of Snap have lost 46.8% of its value in last three months,versus 2.5% growth of its industry. (Read more: What's in the Cards for Snap Inc this Earnings Season?)
Aspen Technology, Inc. (AZPN - Free Report) is also likely to miss fourth-quarter fiscal 2017 expectations as it has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at 40 cents. Last quarter, the company posted positive earnings surprise of 23.68%. Notably, Aspen outperformed the Zacks Consensus Estimate in each of the trailing four quarters, generating an average positive surprise of 16.32%.Shares of Aspen have returned just 4.5% year to date, significantly underperforming the industry’s 21.3% gain.
Even The Trade Desk Inc. (TTD - Free Report) seems unlikely to beat second-quarter 2017 expectations. This is so because the stock has a 0.00% Earnings ESP and carries a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at 15 cents. Last quarter, the company delivered a positive surprise of 533.33%. The Trade Desk has gained 97% year to date, outperforming the 20.2% rally of the industry it belongs to.
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