Hewlett Packard Enterprise Company (HPE - Free Report) is set to report third-quarter fiscal 2017 results on Sep 5. The company posted a negative earnings surprise of 28.6% in the last quarter. Notably, Hewlett Packard has a mixed surprise history, beating the Zacks Consensus Estimate twice, missing the same in one occasion and matching in the other. It has an average negative earnings surprise of 4.4%.
Factors to Consider
Lower demand for servers at the enterprise and SMB segments due to the presence of virtualization and cloud options makes us slightly cautious about Hewlett Packard’s near-term prospects. Notably, per the latest report from Gartner and IDC, server shipments declined for the fifth straight quarter in first-quarter 2017.
The declining trend in server shipments has been hurting Hewlett Packard’s revenues. It should be noted that per Gartner’s report, the company witnessed a year-over-year fall of 15.8% in server revenues and 14.3% in shipments during first-quarter 2017.
Moreover, citing preliminary statistics, Gartner, last month, hinted that server shipments may register another fall in second-quarter 2017. Therefore, we are concerned that the company’s to-be-reported quarterly results will be adversely affected by this persistent decline.
Furthermore, elevated commodities pricing and execution issues remain a major headwind, which are likely to thwart the company’s overall performance in the near term.
Also, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from peers adds to its woes.
Our proven model does not conclusively show that Hewlett Packard will likely beat on earnings this quarter. 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. This is not the case here, as you will see below.
Zacks ESP: Earnings ESP for Hewlett Packard Enterprise is -0.87%. This is so because the Most Accurate estimate of 25 cents is a penny lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Hewlett Packard carries a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s negative ESP 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.
Stock that Warrant a Look
Here are a couple of stock you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Zumiez Inc. , scheduled to release earnings on Sep 7, currently has an Earnings ESP of +16.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Navistar International Corporation (NAV - Free Report) , expected to release earnings on Sep 6, currently has an Earnings ESP of +25% and a Zacks Rank #3.
G-III Apparel Group, LTD. (GIII - Free Report) , expected to release earnings on Sep 6, currently has an Earnings ESP of +4.76% and a Zacks Rank #3.
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