Lexmark International Inc. (LXK) is set to report third-quarter 2014 results on Oct 21. Last quarter, the company posted a positive earnings surprise of 1.90%. Let’s see how things are shaping up for this announcement.
Factors to Consider This Past Quarter
Lexmark’s second-quarter results were better than expected wherein both the top and bottom line figures beat the Zacks Consensus Estimate. Revenues increased on a year-over-year basis primarily on the back of strong growth in Laser and Perceptive Software business.
Although exit from the Inkjet business will impact its overall top line, we see the move as a positive. Revenues, excluding the exit, are expected to be up year over year. Lexmark will now be able to focus more on MPS and the software business where growth prospects are better. Moreover, Lexmark is doing really well in the Managed Print Services (MPS) market and is winning deals continuously.
Lexmark’s transition from a low-margin printer sales business model to high-margin process management software services, MPS and Perceptive, also bodes well.
Although Lexmark has a strong market position, reduced demand for traditional printing hardware has impacted pricing in the computer peripherals market. Pricing pressure from competitors such as Canon, Xerox and Hewlett-Packard Co. (HPQ) and a high debt burden remain the concerns.
Earnings Whispers?
Our proven model does not conclusively show that Lexmark 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: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 93 cents. Hence, the difference is 0.00%.
Zacks Rank: Lexmark currently carries a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are a couple of companies worth considering as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL) has an Earnings ESP of +4.62% and a Zacks Rank #2 (Buy).
Facebook Inc. (FB) has an Earnings ESP of +6.25% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment