Luminex Corp (LMNX) is set to release its fourth-quarter 2014 financial results on Feb 2. In the last reported quarter, the company had delivered a positive earnings surprise in excess of 100%.
Notably, the company' has surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of nearly 86.1%.
Let’s see how things are shaping up prior to this announcement.
Factors to Be Considered This Quarter
Luminex is facing considerable volatility in its consumables revenues, which was down 6% in the last reported quarter.
Owing to transitory inventory management challenges faced by the company’s largest partner, Thermo Fisher Scientific, revenues from consumables is expected to follow a downtrend in the upcoming quarter as well.
Although management interacts with its partners closely in order to monitor consumables demand, there still persists significant lumpiness. New product delays were also responsible for sluggish growth in consumables revenues.
Due to the decline in consumable revenues, Luminex’s partnership segment or TSP revenues also faces significant challenges.
Moreover, Luminex had downgraded the higher end of its 2014 revenue guidance range while announcing its third quarter results. The company now expects revenues in the range of $225–$228 million (prior outlook: $225 to $240 million). The current Zacks Consensus estimate of $227 million lies within the guided range.
Given the negative signals, we do not feel confident about Luminex’s chances to beat on earnings in the fourth quarter of 2014.
Earnings Whispers?
Our proven model does not conclusively show that Luminex is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Earnings ESP represent the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -8.33% for Luminex as the Most Accurate estimate stands at 11 cents while the Zacks Consensus estimate is pegged a tad higher at 12 cents.
Zacks Rank: Luminex has a Zacks Rank #3, which increases the predictive power of ESP; but when combined with an ESP of -8.33%, it 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.
Other Stocks to Consider
Here are some companies that you may consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter.
Arch Capital Group (ACGL) has an earnings ESP of +1.92% and holds a Zacks Rank #1.
American Airlines Group (AAL) has an earnings ESP of +3.78% and carries a Zacks Rank #2.
American Campus Communities (ACC) has an earnings ESP of +1.47% and carries a Zacks Rank #2.
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