We expect storage solutions provider Equinix Inc. (EQIX) to beat expectations when it reports fourth-quarter 2013 results on Feb 19.
Why a Likely Positive Surprise?
Our proven model shows that Equinix is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate (88 cents) and the Zacks Consensus Estimate (78 cents), stands at +12.82%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Equinix’s Zacks Rank #3 and +12.82% ESP makes us very confident in looking for an earnings beat.
What is Driving the Better-Than-Expected Earnings?
Equinix’s data center platform has been popular in the financial services, networking and content management industries. Equinix has taken advantage of the fact that many firms in these industries are setting up their bases in South America. Considering the growth prospects in the region, particularly in Brazil, we believe that Equinix will be able to secure a solid revenue stream. Moreover, Equinix is also expected to gain from its recent alliances and its proposed conversion to Real Estate Investment Trust (REIT).
On the other hand, the company's highly leveraged balance sheet and competitive threats from the likes of AT&T Inc. (T) remain the primary concerns.
It is noteworthy that Equinix has delivered a positive earnings surprise of 28.1% in the last quarter with an average four quarter positive surprise of 13.1%.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Hewlett-Packard Company (HPQ) has an Earnings ESP of +1.18% and holds a Zacks Rank #2 (Buy).
Westlake Chemical Corp. (WLK) has an Earnings ESP of +4.51% and holds a Zacks Rank #1 (Strong Buy).
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