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SAP SE SAP is slated to report third-quarter 2015 results on Oct 20, 2015. Last quarter, the company posted a positive surprise of approximately 27%. Moreover, for the trailing four quarters, the stock reported an average positive surprise of 8.3%.
Let’s see how things are shaping up for this announcement.
Factors at Play
We believe the company’s cloud business, which witnessed whopping three-digit growth during the second quarter, will be a major driver of both the top and bottom line in this quarter as well. Also, the company’s flagship offering S/4HANA, which has been experiencing stellar market traction ever since its introduction last February, will likely act as a significant growth catalyst.
Additionally, SAP’s business network, which it manages through three main players, namely, Ariba (supervising business-to-business commerce), Fieldglass (managing contingent workforce) and Concur (overlooking travel), have proved to be an important asset for the company. During the second quarter of 2015, the firm’s business network experienced three-digit year-over-year growth, and the trend will likely continue in the third quarter too.
This apart, we believe SAP’s Internet of Things (“IoT”) and Big Data platform will also be accretive to its financial performance in the to-be-reported quarter. The company has been making concerted efforts to improve its IoT offerings. With more and more enterprises reinventing their businesses models, SAP’s predictive maintenance solutions, which help facilitate this transition, are expected to reap significant benefits.
Earlier this week, SAP came up with preliminary results for the third quarter of 2015 and going by the key statistics, it looks promising. Per the preliminary assessment, the company projects non-IFRS total revenue for the quarter to grow 17% and operating profit to surge 19%, both year over year.
However, stiff rivalry in the IT services industry and sluggishness in some of its key markets are anticipated to drag the company’s financial performance in the third quarter.
Our proven model does not conclusively show that SAP is likely to beat earnings 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.
Negative Zacks ESP: SAP has a negative Earnings ESP of 1.21%, which is the difference between the Most Accurate estimate of 82 cents and the Zacks Consensus Estimate of 83 cents.
Zacks Rank: SAP’s Zacks Rank #3, when combined with a negative Earnings ESP, makes surprise predictions difficult.
Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Sharps Compliance Corp. SMED, with an Earnings ESP of +25.00% and a Zacks Rank #1.
The Chubb Corporation CB, with an Earnings ESP of +4.59% and a Zacks Rank #2.
Hawaiian Holdings Inc. HA, with an Earnings ESP of +5.88% and a Zacks Rank #2.
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CHUBB CORP (CB): Free Stock Analysis Report
SAP AG ADR (SAP): Free Stock Analysis Report
HAWAIIAN HLDGS (HA): Free Stock Analysis Report
SHARPS COMPLIAN (SMED): Free Stock Analysis Report
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