Lexmark International Inc. (LXK) is set to report fourth-quarter 2014 results on Jan 27. Last quarter, the company posted a positive earnings surprise of 12.9%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Lexmark is focusing on acquisitions to drive growth in the imaging and printing solution market as evident from the recent purchases of ReadSoft and Claron Technology. Though synergies from acquisitions and renewed focus on the software space could set it back on the growth path, these could take some time to have a material impact on the results.
Moreover, the company during the third-quarter conference call has hinted that fourth-quarter results may be negatively impacted due to the exit from Inkjet business, shift to high-margin solutions business and macro uncertainty.
Although Lexmark has a strong market position, reduced demand for traditional printing hardware has impacted pricing in the computer peripherals market. Pricing pressure from competitors such as Canon, Xerox and Hewlett-Packard Co. (HPQ) and a high debt burden remain the concerns.
Earnings Whispers?
Our proven model does not conclusively show that Lexmark will beat earnings 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: The Earnings ESP for Lexmark is -0.86% since the Most Accurate estimate of $1.15 per share, is lower than the Zacks Consensus Estimate of $1.16.
Zacks Rank: Lexmark’s Zacks Rank #4 (Sell).
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.
Stocks to Consider
Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL), with an Earnings ESP of +0.78% and a Zacks Rank #1 (Strong Buy).
Western Digital Corp. (WDC), with an Earnings ESP of +1.43% and a Zacks Rank #3 (Hold).
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