ABB Ltd. (ABB) is set to report third-quarter fiscal 2014 results on Oct 22. Last quarter, the company reported a negative surprise of 6.7%. Let us see how things are shaping up for this announcement.
Factors to Consider
Although the company’s power systems business is expected to perform well in the long run, there are some short-term risks confronting it. These risks are associated with high-risk projects and include some operational issues as well. Further, the company has a line-up of critical projects to be completed in fiscal 2014 and 2015. The high level of complexity associated with these projects makes the prediction of the cost variables difficult. Therefore, the company is likely to incur higher-than-estimated charges in the upcoming quarters.
Earnings Whispers?
Our proven model does not conclusively show that ABB is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESPand a Zacks Rank #1, 2 or 3 to beat earnings estimate. That is not the case here as you will see below.
Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. The company’s Earnings ESP stands at -12.9%. This is because the Most Accurate estimate stands at 27 cents, while the Zacks Consensus Estimate is pegged at 31 cents.
Zacks Rank: ABB’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
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.
Stocks to Consider
Here are some companies that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Nordson Corp. (NDSN) with an Earnings ESP of +0.88% and a Zacks Rank #2 (Buy).
Caterpillar Inc. (CAT) with an Earnings ESP of +2.26% and a Zacks Rank #3 (Hold).
MSC Industrial Direct Co. Inc. (MSM) with an Earnings ESP of +0.99% and a Zacks Rank #3.
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