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Axon Enterprise (AAXN) Q3 Earnings: What's in the Cards?

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Axon Enterprise, Inc (AAXN - Free Report) is scheduled to report third-quarter 2018 results after the closing bell on Nov 6.
 
In the last reported quarter, the company’s earnings of 18 cents per share surpassed the Zacks Consensus Estimate of 9 cents. The company has delivered better-than-expected results in three of the trailing four quarters, recording a positive average earnings surprise of 355%.
 
Let us see how things are shaping up for the company prior to this announcement.
 
Axon Enterprise, Inc Price and EPS Surprise
 
Our proven model clearly indicates that Axon Enterprise is likely to beat estimates this to-be-reported quarter because it has the right combination of the two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for a probable positive surprise.
 
Earnings ESP: Axon Enterprise has an Earnings ESP of +33.33%, representing the difference between the Most Accurate Estimate (16 cents per share) and the Zacks Consensus Estimate (12 cents per share). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: Axon Enterprise currently has a Zacks Rank #3, which increases the predictive power of ESP. Consequently, this combination of a positive ESP with a favorable Zacks Rank makes us reasonably confident of an earnings beat.
 
Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Factors to Influence Q3 Results
 
The company’s strategic growth areas include TASER weapons, Sensors hardware including on-officer body cameras and Axon Fleet in-car video systems, Evidence.com connected software network, and Axon Records and Computer Aided Dispatch software. These value streams have an estimated total addressable market of $7.7 billion, comprising TASER weapons ($1.5 billion), hardware sensors ($0.7 billion), and cloud-based public safety software ($5.5 billion.) The company continues to expand product offerings and introduce multiple software/service solutions. Axon will continue to benefit in the third quarter from its expanded product offerings and strong execution. 
 
The company’s TASER Weapons segment will continue to benefit from the increased sales of its products, and improved sales under the Officer Safety Plan and TASER 60 purchase programs.
 
The Software and Sensors segment will gain as the company continues to add users to its network resulting in steady product revenues. It will also benefit from increased aggregate users which resulted in increased Evidence.com and extended warranty revenues. Continued adoption of Axon Cloud, drove 76% revenue growth year over year in the second quarter. It is anticipated to drive segment revenues in the third-quarter 2018 as well. Further, Axon Fleet, the company's in-car camera system will contribute to the top line in the to-be-reported quarter.
 
Notably, bookings related to the company's Software and Sensors segment were $89 million in the second quarter, up 8.4% year over year. As of Jun 30, 2018, Software & Sensors backlog was approximately $650 million. This bodes well for third-quarter performance.
 
In May, Axon closed the acquisition of the public safety camera provider. The buyout led to the addition of five major U.S. cities’ police departments and also added Mexico City and Mexico's Federal Police. It will contribute to revenues in the third quarter. However, the acquisition is likely to strain margins of the software and sensors segment due to the fact that some of VIEVU’s larger contracts were priced lower than Axon would have priced. There will also be some integration costs involved.
 
The Zacks Consensus Estimate for total revenues is pegged at $102.7 million, projecting year-over-year growth of 39%. The Zacks Consensus Estimate for earnings is pegged at 12 cents for third-quarter 2018, a substantial improvement from 1 cent per share reported in the prior-year quarter.
 
Price Performance
 
 
In the last year, the company’s shares have surged 162%, against the industry’s decline of 34%.
 
Other Stocks to Consider
 
Here are some other stocks worth considering as these too have the right combination of elements to post an earnings beat this quarter.
 
Tetra Tech, Inc. (TTEK - Free Report) has an Earnings ESP of +0.96% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. Its shares have gained 34% in the past year.
 
Allegion PLC (ALLE - Free Report) has an Earnings ESP of +0.04% and a Zacks Rank #3. Its shares have gained 6% in the past year.
 
Flowserve Corporation (FLS - Free Report) has an Earnings ESP of +1.72% and a Zacks Rank #2. Its shares have gone up 19% in a year’s time.
 
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