What’s in Store for Rackspace (RAX) this Earnings Season?

Rackspace Hosting, Inc. RAX is scheduled to report second-quarter 2015 results on Aug 10. Last quarter, the company posted in-line earnings.

Let us see how things are shaping up for this announcement.

Factors to Consider

Rackspace offers computing-as-a-service, integrating the industry's best technologies into a flexible service offering, making computing more reliable and affordable. A trusted partner to companies of all sizes, Rackspace enhances the efficiency of IT departments.

The company’s partnership with Google GOOGL has strengthened its position in the hybrid cloud computing market. Hybrid clouds comprise features of both public and private clouds and are much more secure than public ones.

The partnership has enabled the company in gaining new clients which should boost Rackspace’s second-quarter results, in our view.

However, competition in the Infrastructure-as-a-Service (IaaS) market is intense, particularly with players like Amazon and behemoths like Microsoft willing to price aggressively. This could weigh on Rackspace’s second-quarter profitability.

Earnings Whispers

Our proven model does not conclusively show that Rackspace will beat earnings this quarter. That 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. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at earnings per share of 20 cents. Hence, the difference is 0.00%.

Zacks Rank: Rackspace currently has a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a couple of companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

eMagin Corp. EMAN, with an Earnings ESP of +100.00% and a Zacks Rank #3.

Magic Software Enterprises Ltd. MGIC, with an Earnings ESP of +8.33% and a Zacks Rank #3.

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