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Will High Costs Mar Motorola Solutions' (MSI) Q3 Earnings?

Motorola Solutions MSI is scheduled to report third-quarter 2017 results on Nov 2, after the market closes.

In the last reported quarter, the company’s earnings (excluding 34 cents from non-recurring items) of $1.12 per share comfortably surpassed the Zacks Consensus Estimate of $1.04. Also, the bottom line improved 8.7% from the year-ago figure owing to an increase in sales, driven by the strong performance of its land and mobile radio operations.

In fact, Motorola has an impressive track record with respect to earnings per share. It has outpaced the Zacks Consensus Estimate in the last four quarters, with an average beat of 14.5%.

However, the stock has struggled of late. This is evident from the fact that shares of the company have gained a mere 0.6% over the last three months, significantly underperforming the S&P 500’s 4.4% rally.

The pessimism surrounding the stock ahead of its third-quarter earnings release is evident from a 0.7% decline in the Zacks Consensus Estimate over the last 60 days.

Lets delve deep to find out the factors likely to have a bearing on Motorola’s third-quarter results.

We expect Motorola’s results to be hurt by increased costs. However, the company is looking to drive growth through acquisitions. Though positive on the strategy, we note that costs associated with the acquisitions might weigh on the bottom line.

In August 2017, Motorola completed the acquisition of the privately held Kodiak Networks in a bid to broaden its software product portfolio. Costs associated with the integration process are likely to hurt the bottom line.

Moreover, adverse foreign currency movements might hamper results in the quarter. The company’s high debt levels also remain a concern.

On the brighter side, increased product sales are likely to boost results in the soon to-be-reported quarter. Strong performance in the Americas region is likely to lead to the improvement.  In fact, Motorola expects revenues for the third quarter of 2017 to improve in the band of 3% to 4%, on a year-over-year basis.

Adjusted earnings per share are projected in the range of $1.36 to $1.41. The Zacks Consensus Estimate is pegged at $1.40 per share.

What Does Our Model Say?

Our proven model does not show that Motorolawill beat earnings 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. However, that is not the case as highlighted below.

Zacks Rank: Motorola carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks ESP: Motorola has an Earnings ESP of -0.24%, which acts as a spoiler. The Zacks Rank combined with a negative Earnings ESP leaves the surprise prediction inconclusive. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Conversely, we caution against stocks with Zacks Ranks #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Computer and Technology sector may consider the following companies, as they have the right combination of elements to post earnings beat this quarter:

AMTEK, Inc. AME has an Earnings ESP of +0.18% and carries a Zacks Rank of 3. The company will report third-quarter earnings numbers on Nov 2.

Arrow Electronics ARW has an Earnings ESP of +1.05% and holds a Zacks Rank #2. The company will also report third-quarter earnings numbers on Nov 2.

Qualcomm Inc. QCOM has an Earnings ESP of +0.58% and carries a Zacks Rank #3. The company is scheduled to report its fourth-quarter fiscal 2017 results on Nov 1.

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QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
 
Motorola Solutions, Inc. (MSI): Free Stock Analysis Report
 
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AMTEK, Inc. (AME): Free Stock Analysis Report
 
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