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SAP SE (SAP) to Report Q1 Earnings: What’s in the Cards?

Zacks

SAP SE SAP is slated to report first-quarter 2017 results on Apr 25.

After two back-to-back earnings misses, the company posted a positive earnings surprise of 23.6% in the last reported quarter. Overall, SAP has a choppy earnings surprise history, beating estimates twice for as many misses in the trailing four quarters. It has an average positive surprise of 5.4% for the observed period.

Let’s see how things are shaping up for this announcement.

Factors to Consider


In the past few quarters, SAP’s top-line growth was largely driven by the solid growth of its cloud subscriptions and support business. We believe that solid performance of both traditional and cloud business will continue to drive sales growth for the soon-to-be-reported quarter. The company expects cloud subscriptions and support revenues to surpass software license revenues in the near future.

As a matter of fact, SAP HANA (High-Performance Analytic Appliance), a class of business applications, has enjoyed momentous traction since its launch and is likely to continue driving first quarter financials. During fourth-quarter 2016, the company gained 1300 customers, of which 30% are entirely new. In the past one year, S/4HANA adoption doubled to more than 5,400 customers.

Other potential profit churners include SAP’s Customer Engagement and Commerce solutions, and human capital management applications. SuccessFactors Employee Central, which forms the backbone of the company’s Human Capital Management offerings, surpassed the 1,580-customer mark in fourth-quarter 2016. In addition, SAP’s wide business network, managed through three players—Ariba, Fieldglass and Concur, is expected to supplement first-quarter top-line performance.

Despite these positives, economic slowdown in most of the company’s end markets is likely to hurt first-quarter financials. For quite some time now, weak sales in Latin American countries and China have restricted top-line growth. Unfortunately, this trend is likely to continue for the soon-to-be-reported quarter as well. In addition, a weaker global client spending in the technology sector is expected to weigh down on the company’s profitability.

Moreover, the cloud domain is characterized by sturdy competition from technology biggies like Microsoft, IBM and Amazon. Stiff competition in the IT industry may also dampen the first-quarter financials. Furthermore, currency fluctuations, heightened by the Brexit referendum, are likely to play spoilsport for the upcoming results.

Earnings Whispers

Our proven model does not conclusively show that SAP will beat earnings estimates in 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. But that is not the case here as you will see below.

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

SAP SE Price and EPS Surprise

SAP SE Price and EPS Surprise | SAP SE Quote

Zacks Rank: SAP has a Zacks Rank #3. Though Zacks Rank #1, 2 and 3 increase the predictive power of the ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

Apple Inc. AAPL has an Earnings ESP of +6.47% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avid Technology, Inc. AVID has an Earnings ESP of +160.00% and a Zacks Rank #2.

Seagate Technology plc STX has an Earnings ESP of +3.77% and carries a Zacks Rank #2.

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