NetApp Inc. (NTAP) is set to report third-quarter fiscal 2015 results on Feb 11. Last quarter, the company posted a negative earnings surprise of 1.9%. Moreover, NetApp has underperformed the Zacks Consensus Estimate in two out of the four preceding quarters with an average negative surprise of 1.0%.
Let us see how things are shaping up for this announcement.
Factors to Consider
NetApp reported tepid second quarter results, with both the top and bottom lines missing the Zacks Consensus Estimate. Also, revenues were down on a year over year basis, primarily due to a drop in original equipment manufacturer (OEM) revenues.
Nevertheless, the company is gaining momentum in flash-based solutions with the newly introduced all-flash array, which will help it to gain traction in the storage market. The recent product launches and product refreshes will drive revenues and stringent cost controls will ensure margin expansion.
However, we believe that an uncertain IT spending outlook and competition from EMC Corp. remain headwinds. Continuous decline in OEM revenues further add to the woes.
Earnings Whispers?
Our proven model does not conclusively show that NetApp is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:
Zacks ESP: NetApp’s Earnings ESP is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 60 cents per share.
Zacks Rank: NetApp’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #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, which are worth considering as our model shows that they have the right combination of these two elements:
NVIDIA Corporation (NVDA) with Earnings ESP of +3.45% and a Zacks Rank #2 (Buy).
Criteo SA (CRTO) with Earnings ESP of +4.00% and a Zacks Rank #3.
Demandware, Inc. (DWRE) with Earnings ESP of +25.00% and a Zacks Rank #3.
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