The third-quarter 2016 earnings season has commenced on a better note that last quarter, with big banks reporting positive results. However, growth trends are still dreary particularly due to weakness in the energy and technology sector.
As per the latest Zacks Earnings Trend report, overall third-quarter earnings for S&P 500 companies are expected to be down 2.2% from the year-ago quarter on a 1.5% increase in revenues.
Earnings for the Technology sector are anticipated to be down 1.7% on 1.1% lower revenues. Apple’s guidance, which projects an earnings decline of 20.6% on 9.6% lower revenues, will deal a major blow to the sector's earnings. Excluding Apple, earnings are estimated to grow 3%.
This week, we will see earnings releases from more than 244 companies, out of which 80 are S&P 500 members.
Here is a sneak peek into four technology companies lined up to report earnings on Oct 19.
Hard-disk drive provider Seagate Technology plc STX is expected to beat first-quarter 2017 earnings estimates as it has a favorable combination of a Zacks Rank #2 (Buy) and Earnings ESP of +3.37%.
This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) to beat earnings. Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Seagate recently announced preliminary results for the first quarter. The company now estimates revenues to be $2.8 billion, compared with $2.7 billion guided previously. Moreover, non-GAAP gross margin is anticipated to be 29%, compared with its earlier forecast of 27%. (Read More: Seagate (STX) to Report Q1 Earnings: A Beat in the Cards?)
CA-based chipmaker Xilinx Inc. XLNX is also likely to beat second-quarter fiscal 2017 earnings estimates based on the favorable combination of its Zacks Rank #2 and Earnings ESP of +1.85%.You can see the complete list of today’s Zacks #1 Rank stocks here.
Moreover, increasing demand for 28-nm, 20-nm and 16-nm nodes, driven by higher wireless deployments and strength in the wired communication segment, is expected to sustain growth in the to-be-reported quarter.
We also note that Xilinx's results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 4.78%. (Read More: Xilinx (XLNX) to Report Q2 Earnings: Stock Likely to Beat)
However, Citrix Systems Inc. CTXS, a leading provider of virtualization, networking and cloud computing solutions, is unlikely to post a beat in the third quarter, given the combination of a Zacks Rank #3 and an Earnings ESP of 0.00%.
Nevertheless, Citrix’s impressive product portfolio and innovative pipeline is a major positive. We note that the company’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 28.97%.(Read More: Citrix Systems (CTXS) Q3 Earnings: A Surprise in Store?)
Similarly, knowledge process and IT services provider Syntel Inc. SYNT is unlikely to post a beat in third-quarter 2016 due to the combination of its Zacks Rank #5 (Strong Sell) and Earnings ESP of +8.33%. We note that Syntel’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 12.01%.
Meanwhile, Syntel recently paid a special cash dividend of $15 per share, which was funded through one-time repatriation of approximately $1.24 billion of cash held by the company’s foreign subsidiaries and a portion of borrowings under a new senior credit facility.
In connection to this one-time repatriation, Syntel anticipates to recognize a one-time tax expense of about $264 million (net of foreign tax credits) in the to-be-reported quarter. The company also revised its previous full-year 2016 earnings guidance range of $2.55–$2.70 to a loss of 60–75 cents due to additional tax expenses and charges.
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