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Can Splunk (SPLK) Come Up with a Surprise in Q3 Earnings?


Splunk Inc. SPLK is scheduled to release third-quarter fiscal 2017 results on Nov 29. Splunk posted a negative surprise of 6.78% in the last quarter. The company has also posted an average negative surprise of 10.13% over the trailing four quarters. Let’s see how things are shaping up for the upcoming announcement.

Shares of Splunk have been on a downward trend on a year-to-date basis. The stock generated a negative return of 0.82% compared with the Zacks Computer-Software Services Industry gain of 3.82%.

Factors to Consider

Splunk has been strengthening its product pipeline to benefit from the growing data and analytics market. Over the past few years, the cloud and data analytics market has seen strong growth especially in the enterprise domain, which is a positive for the company. Also, the company has been seeing an increase in the numbers of customers. In the last reported quarter, it added 500 customers.

However, due to the ongoing transition, the license bookings business will start to slow down. Also, increasing investments in research and development coupled with higher operating costs are anticipated to be a near-term drag on profitability. As Splunk continues to explore and expand into new markets, sales and marketing expenditures are also predicted to rise significantly, thereby hurting margins in 2017. For the second half of fiscal 2017, capex is estimated in the range $35 million to $45 million.

Also, growing competition from established players such as International Business Machines IBM, SAP, Amazon and Microsoft MSFT, all of which are vying to get a bigger share of the market, is a concern.

For the third quarter, Splunk expects revenues in the range of $228 million and $230 million and non-GAAP operating margin in the range of 5% to 6%.

Earnings Whispers

Our proven model does not conclusively show that Splunk 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 3 (Hold) for this to happen. That is not the case here as you will see below

Zacks ESP: Its Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 57 cents.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Splunk carries a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

SPLUNK INC Price and EPS Surprise

SPLUNK INC Price and EPS Surprise | SPLUNK INC Quote

Stock to Consider

Here is a stock you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:

PVH Corp PVH with an Earnings ESP of +0.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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