VMware, Inc. (VMW) is set to report fourth-quarter 2014 results on Jan 27. Last quarter, the company posted a 12.96% positive earnings surprise. The company has posted an average positive earnings surprise of 6.12% over the past four quarters. Let’s see how things are shaping up for this announcement.
Factors at Play
VMware remains one of the leading companies in the virtualization and cloud computing market. The company’s innovative product pipeline, strategic partnerships with the likes of Hewlett-Packard (HP), continuous contract wins and robust international sales are expected to drive overall results.
Additionally, acquisitions like Desktone, AirWatch and CloudVolumes significantly expanded VMware’s product portfolio.
However, sluggish IT spending and stiff competition from the likes of Microsoft (MSFT) and Citrix Systems remain a major headwind. Moreover, VMware’s continued investment in the emerging markets, product innovations and acquisitions are expected to weigh on margins in the near term.
Earnings Whispers?
Our proven model does not conclusively show that VMware is likely to 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: VMware has an Earnings ESP of -1.25% as the Most Accurate estimate is pegged at 79 cents while the Zacks Consensus Estimate stands at 80 cents.
Zacks Rank: VMware currently has a 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
Investors may consider the following stocks which, according to our model, 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 #2 (Buy).
Facebook Inc. (FB), with an Earnings ESP of +9.09% and a Zacks Rank #3 (Hold).
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