Will Citrix Systems (CTXS) Surprise Earnings This Season?

Citrix Systems Inc. (CTXS) is set to release its fourth-quarter fiscal 2014 financial numbers on Jan 29, before the opening bell.

Last quarter, the company delivered a positive 11.76% earnings surprise. Let’s see how things are shaping up for this announcement.

Factors at Play

We believe that the global trend toward virtualization and cloud computing will help Citrix retain its momentum in the upcoming quarters. Moreover, its products XenMobile and XenApps are gaining significant market traction in the highly lucrative enterprise mobility segment and Windows app virtualization.

In addition, the company’s latest launch of the innovative app – ShareConnect – will not only provide unique desktop-like facilities to iPads and Android-based tablets but will also boost demand going forward.

On the flipside, the server virtualization market is intensely challenging and is also becoming increasingly commoditized. Citrix has been steadily cutting the prices of its XenServer products and this has resulted in most of its offerings being free. Also, the company witnessed a relatively slow conversion from free offerings to paid-for-essential versions. Such a discouraging conversion rate will certainly impact the company’s business in the upcoming quarters.

Earnings Whispers

Our proven model does not conclusively show that Citrix is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are poised at 80 cents. Hence, the ESP is 0.00%.

Zacks Rank: Citrix carries a Zacks Rank #3 (Hold). While this increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise.

Meanwhile, 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.

Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

American Tower Corporation (AMT) with an earnings ESP of +4.00% and a Zacks Rank #3.

Comcast Corp. (CMCSA) with an earnings ESP of +1.30% and a Zacks Rank #3.

Time Warner Cable Inc. (TWC) with an earnings ESP of +2.38% and a Zacks Rank #3.