The second-quarter earnings season is past the halfway mark with results from 265 S&P 500 members out as of Jul 27.
Per the latest Earnings Preview, total earnings of these index members are up 23.6% year over year on the back of 10.1% higher revenues. Beat ratios are impressive with 80.8% of the companies beating earnings estimates and 72.1% coming ahead of revenue expectations.
Further, the report suggests that second-quarter earnings for total S&P 500 companies are projected to improve 23.6% year over year, with total revenues increasing 8.8%.
The Technology sector, of which Security is part, appears to be quite strong. For the sector, earnings are expected to improve 30.6% year over year while revenues are likely to rise 11.8%. Notably, it is one of the 12 sectors anticipated to report double-digit earnings growth in the quarter to be reported.
Coming to cyber security, the industry has been putting up an impressive show since the second half of 2017, thanks to a slew of cyber-attacks.
Demand for security-related products, among companies and governments, is on the rise, which, in turn, is boosting top and bottom lines at cyber-security providers.
However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment as well as management’s ability to implement operating and strategic plans.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP Zacks Rank #4 (Sell) or #5 (Strong Sell) are best avoided.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Let’s see what’s in store for the following three security stocks slated to report on Aug 1.
Radware Ltd. RDWR is a developer of products that manage and direct Internet traffic among network resources to enable continuous access to websites and other services, applications and content based on Internet protocol.
The company is likely to beat second-quarter 2018 expectations as it has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +5.26%. Notably, the company surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, with an average positive surprise of 10.2%.
FireEye Inc. FEYE is a specialized provider of a security platform against cyber-attacks to enterprises and governments.
The company’s consistent efforts toward bringing in new and advanced products have been attracting a wide range of customers. The company’s second-quarter results are likely to benefit from improved operational efficiency and sales productivity, as well as healthy demand for intelligence-led security products.
Notably, the company beat the Zacks Consensus Estimate thrice in the trailing four quarters and matched it once, with an average positive surprise of 77.4%.
However, the company currently has an Earnings ESP of 0.00% and a Zacks Rank #3, which makes surprise prediction difficult.
Fortinet Inc. FTNT is a provider of network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide.
The company’s shift in focus toward selling more subscription-based services is helping it generate stable revenues while expanding margins. A large number of deal wins and customer additions is proving conducive for top-line growth.
Fortinet has a positive record of earnings surprises in the trailing four quarters, with an average beat of 26.2%. However, the unfavorable combination of Earnings ESP of 0.00% and a Zacks Rank #3 makes surprise prediction difficult for the second quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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