Castlight Health (CSLT) Q2 Earnings: What’s in the Cards?

Castlight Health, Inc. CSLT is set to report second-quarter 2016 results on Aug 8. Last quarter, the company posted a positive earnings surprise of 9.52%. Let us see how things are shaping up for this announcement.

Factors to Consider

Castlight Health operates as a provider of cloud-based software. It enables enterprises to gain control over their rapidly escalating health care costs.

The company reported encouraging first-quarter results. Revenues increased on a year-over-year basis and the reported loss also narrowed from the year-ago figure. Subscription revenues during the quarter came in at $21 million, up 41% on a year-over-year basis.

Castlight Health’s non-GAAP gross margin for the first quarter was 62.9%, up from 58.1% reported in the year-ago quarter. The year-over-year growth in gross margin was primarily due to a higher revenue base.

Furthermore, significant investments in growth areas for improving implementation timelines, particularly in case of upsell products, will boost profitability in the to-be reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Castlight Health is likely to beat the Zacks Consensus Estimate in the upcoming release. 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, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Castlight Health is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 19 cents per share.

Zacks Rank: Castlight Health has a Zacks Rank #3. 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 a Zacks Rank #4 and 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 companies, which are worth considering, as our model shows that they have the right combination of these two elements:

Alamos Gold, Inc. AGI, with an Earnings ESP of +100.0% and a Zacks Rank #2

Sun Life Financial Inc. SLF, with an Earnings ESP of +1.47% and a Zacks Rank #2

Vivint Solar, Inc. VSLR, with an Earnings ESP of +1.79% and a Zacks Rank #3

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