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Factors Likely to Influence Lenovo's (LNVGY) Q1 Earnings

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Lenovo Group Ltd. (LNVGY - Free Report) is slated to release first-quarter results for the fiscal year ending Mar 31, 2020, on Aug 15, Hong Kong time.

Past-Quarter Performance

In the last reported quarter, the company reported earnings of 19 cents, which improved from the year-ago quarter’s figure of 13 cents. Revenues of $11.71 billion advanced 10% on a year-over-year basis, primarily on the back of x86 and Motorola acquisition.

Q1 Estimates

The Zacks Consensus Estimate for first-quarter earnings is pegged at 41 cents, indicating an improvement of about 215.4% from year-ago earnings. For quarterly sales, the consensus mark stands at $13.31 billion, suggesting growth of 11.8% from the year-ago reported figure.

Lenovo’s stock has returned 32.17% in a year’s time, against the industry's decline of 5.4%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Lenovo’s continuous efforts to strengthen product portfolio and focus on existing workloads such as security and new workloads like IoT and Edge AI are likely to aid the to-be-reported quarter’s top line. The company’s focus on building PCs and mobile internet devices to provide a highly-efficient global supply chain and strong strategic execution is enhancing user experience, which in turn is likely to aid the upcoming quarterly results.

The company recently launched the Lenovo ThinkSystem SR635 and SR655 server platforms, in a bid to boost capabilities in embedded computing. The servers, powered by next-generation AMD EPYC 7002 Series processors, delivers high levels of workload efficiency and performance to address the growing demand of telecommunications customers. We believe Lenovo has a strong product pipeline, which is likely to drive broad-based top-line growth, going forward. Moreover, rapid adoption of server platform and solid growth in the mobile Internet devices will drive incremental top-line growth in the to-be-reported quarter.

The company has also entered into a strategic alliance with Qualcomm Incorporated (QCOM - Free Report) . The partnership is aimed at introducing the world’s first 5G PC at Computex Taipei 2019. Notably, the collaboration is aimed at bringing innovation to the PC ecosystem.

Moreover, Lenovo’s patent cross-licensing deal with Microsoft bodes well. The deal will allow Lenovo to use some of Microsoft’s intellectual properties in its own and subsidiary Motorola devices. By offering customers Microsoft’s popular apps, Lenovo can strengthen presence in the mobile market.

In the last reported quarter, the PC and Smart Devices group (PCSD) grew 10.3% year over year. The business is ranked #1 in consumer innovation, according to IDC.

According to Gartner, Lenovo was among the top three vendors, comprising a combined 64% share of the PC market in the second quarter. Lenovo has been benefiting immensely from its joint venture with Fujitsu. This China-based company has regained its top berth in the reported quarter with 25% market share, per Gartner as well as IDC. Notably, the company achieved the highest growth level in shipments in the quarter. We believe that an improving trend in PC shipments favors business prospects of Lenovo, which continues to depend substantially on PC sales.

Strong focus on product innovation and introducing new products is anticipated to provide the company a competitive edge against peers, which in turn will impact the top line in the to-be-reported quarter.

Moreover, we believe that the company’s alliance with NetApp, AMD, Microsoft, Qualcomm, and VMware; acquisition synergies; and strong expansion are likely to favor first-quarter results.

However, increasing investments on product enhancements and other growth strategies are likely to limit margin expansion at least in the near term.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Lenovohas a Zacks Rank #2 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.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Lockheed Martin Corporation (LMT - Free Report) has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMC Entertainment Holdings, Inc. (AMC - Free Report) has an Earnings ESP of +13.99% and a Zacks Rank #3.

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