Yahoo Inc. (YHOO) is set to report second-quarter 2014 results on Jul 15. Last quarter, it posted a 3.5% positive surprise. Let’s see how things are shaping up for this announcement.
Factors this Past Quarter
Yahoo’s first-quarter earnings beat the Zacks Consensus Estimate of 29 cents driven by the strength in Alibaba. However, GAAP revenues of $1.13 billion were down 10.5% sequentially and 0.7% year over year.
Margins contracted both sequentially as well as from the year-ago quarter due to higher-than-expected expenses and an unfavorable mix.
For the second quarter, Yahoo expects revenues on an ex-TAC basis within $1.06–$1.10 billion, adjusted EBITDA in the range of $290–$330 million and non-GAAP operating income in the $130–$170 million range.
Earnings Whispers?
Our proven model does not conclusively show that Yahoo will beat earnings this quarter. That 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 Most Accurate estimate stands at 27 cents while the Zacks Consensus Estimate is higher at 30 cents. That is a difference of -10.0%.
Zacks Rank: Yahoo has a Zacks Rank #4 (Sell).
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
You could consider other stocks with a positive Earnings ESP and Zacks Rank #1, 2 or 3 such as:
Gentex Corp. (GNTX), with an Earnings ESP of +2.08% and a Zacks Rank #1 (Strong Buy).
AmSurg Corp. (AMSG), with an Earnings ESP of +3.13% and a Zacks Rank #1.
Intel Corporation (INTC), with an Earnings ESP of +1.92% and a Zacks Rank #1.
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