Symantec Corp. SYMC is set to report second-quarter fiscal 2016 results on Nov 5. Last quarter, the company posted a negative earnings surprise of 8.1%. Let us see how things are shaping up for this announcement.
Factors to Consider
Continued investments to launch new and innovative products could impact margins in the to-be reported quarter near term. Nonetheless, investment in growth areas such as Enterprise backup, Storage Management and Security businesses are expected to drive the company’s top line.
Moreover, Symantec’s restructuring initiatives and share buyback plans are expected to support the bottom line.
It is worth mentioning that Symantec finally found a buyer for its information management division – Veritas. In Aug this year, the cyber security company announced that private equity firm, The Carlyle Group, along with Singapore’s sovereign wealth fund, GIC, has signed a deal to buy Veritas for $8 billion. Selling Veritas reflects the company’s strategy of refocusing itself on the security market while lessening its dependence on antivirus.
However, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from Intel INTC and Microsoft, remain headwinds. The uncertainty over PC sales further adds to the woes.
Symantec had delivered lower-than-expected first-quarter results. The year-over-year comparisons were unfavorable for both earnings and revenues. The year-over-year decline in revenues was mainly due to the negative impact of foreign currency exchange rates.
Earnings Whispers?
Our proven model does not conclusively show that Symantec will beat estimates this quarter. This 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 Symantec is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 35 cents per share.
Zacks Rank: Symantec has a Zacks Rank #2 (Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with 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 some other companies, which are worth considering, as our model shows that they have the right combination of the two elements:
CDW Corporation CDW, with an Earnings ESP of +2.63% and a Zacks Rank #2
CenturyLink, Inc. CTL, with an Earnings ESP of +1.45% and a Zacks Rank #2
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