CA Inc. (CA) is set to report third-quarter fiscal 2015 results on Jan 20. Last quarter, the company posted a positive earnings surprise of 5.1%. It is worth noting that CA has outperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average positive earnings surprise of 7.5%. Let us see how things are shaping up for this announcement.
Factors to Consider
CA reported mixed second-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The year-over-year comparisons were not favorable either. CA’s major revenue generating segments were adversely affected during the reported quarter primarily due to lower-than-expected sales of new products. The company also provided a modest earnings outlook for fiscal 2015.
Nonetheless, we believe that the breadth of its products and the increased efficiency offered by them will attract customers across sectors, lending stability to the business model. We are positive about CA’s increased cloud exposure. A decent renewal rate, modest cash position and share repurchase also appear encouraging.
On the other hand, increasing competition from Oracle, International Business Machines and Hewlett-Packard and exposure to Europe remain near-term headwinds.
Earnings Whispers?
Our proven model does not conclusively show that CA will beat earnings estimates 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 56 cents. Hence, the difference is 0.00%.
Zacks Rank: CA’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
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
Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL) with Earnings ESP of +0.78% and a Zacks Rank #2 (Buy)
The Boeing Company (BA) with Earnings ESP of +0.97% and a Zacks Rank #2
Amazon.com Inc. (AMZN) with Earnings ESP of +70.83% and a Zacks Rank #3
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