Fortinet Inc. (FTNT) is set to report third-quarter fiscal 2014 results on Oct 22. Last quarter, the company posted a negative earnings surprise of 16.7%. It is worth noting that Fortinet has underperformed the Zacks Consensus Estimate in two out of the four preceding quarters with a negative earnings surprise average of 4.6%.
Let us see how things are shaping up for this announcement.
Factors this Past Quarter
Fortinet reported mixed second-quarter of 2014 results, wherein the top line came ahead of Zacks Consensus Estimate while the bottom line missed the same. Nonetheless, revenues increased year over year aided by an increase in its operating segments.
Despite the continuing macro uncertainty, Fortinet seems positive on a healthy network security market, its product lineup and investment plans.
However, margin contraction due to continuous investments in research and development and competition from key network security players such as Cisco Systems Inc., Check Point, Juniper Networks and Palo Alto Networks are concerns. But we believe that product ramps, deal wins, continuous growth of the network security market and expected benefits from ongoing investments are positives.
Earnings Whispers?
Our proven model does not conclusively show that Fortinet will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stands at 5 cents. Hence, the difference is 0.00%.
Zacks Rank: Fortinet’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL) with an Earnings ESP of +4.62% and a Zacks Rank #2 (Buy)
Facebook, Inc. (FB) with an Earnings ESP of +6.25% and a Zacks Rank #2
Seagate Technology Public Limited Company (STX) has an Earnings ESP of +2.40% and a Zacks Rank #3
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