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4 Tech Stocks Likely to Outperform This Earnings Season

According to the latest Earnings Trends, 77.4% of the sector’s companies in the S&P 500 index have reported their results as of Nov 8. Total earnings for these companies are up 23.2% on a year-over-year basis on 10.9% higher revenues. Moreover, 81.3% of these companies beat earnings estimates, while 87.5% surpassed revenue estimates.

The upbeat momentum can be attributed to impressive results from technology giants like Apple Inc. (AAPL), Facebook Inc. (FB), Google, Intel Corporation and Microsoft Corporation.

Apple has been a key contributor to the sector’s strong performance backed by impressive iPhone sales. Facebook’s advertising revenues continued to surge, while Google benefited from mobile strength, rapidly growing Google cloud and total paid click growth. Microsoft also gained from the strong Azure performance.

However, Intel was a surprise package in the quarter. Solid results from the data-center portion fully offset weakness in the pc-market related business.

Key Catalysts  

The technology sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) tools, Augmented/Virtual (AR/VR) reality devices, autonomous cars, advanced driver assisted systems (ADAS) as well as Internet of Things (IoT) related software and hardware.

Rapidly expanding IoT market is driving growth for chip components to power applications, particularly ADAS, medical/healthcare and smart devices. Semiconductors are mainly gaining from strong demand for power-efficient and high-performance chips. These are essential to run cloud-data centers and process massive data by using IoT analytics, machine learning and deep learning applications.

Moreover, rapid development of 5G platform and technology has evolved as another catalyst for semiconductor providers.

Further, the server refresh cycle following the launch of processors by Intel and Advanced Micro Devices Inc. (AMD) is a key growth driver.

Additionally, growing incidents of cyber attack is anticipated to drive demand for cybersecurity software.

How to Make the Right Pick?

With the existence of a number of industry players, finding the right technology stocks that have the potential to beat earnings can be a daunting task. Our proprietary methodology, however, makes it fairly simple for investors.

You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
 
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
 
Our Choices
 
Given below are four technology providers that have the right combination of elements to post an earnings beat this quarter:

Hewlett Packard Enterprise Company (HPE), headquartered in Palo Alto, CA, provides enterprise hardware. The company is facing tough times due to competitive pricing, heightened commodities pricing pressure and dilution from mergers & acquisitions. Nevertheless, the ongoing restructuring initiatives along with enhanced capabilities of its hybrid IT model are key drivers.

The company is set to report fourth-quarter fiscal 2017 results on Nov 21. Currently, Hewlett Packard has an Earnings ESP of +1.86% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cisco Systems Inc. (CSCO), based in San Jose, CA, is a leading provider of technologies that encompasses networking, security, collaboration and the cloud. The company’s expanding footprint in the rapidly growing security market presents significant growth opportunity. However, intense competition and slow order growth from service providers are headwinds.

We note that Cisco beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, with an average positive earnings surprise of 2.16%.

This Zacks Rank #3 stock has an Earnings ESP of +0.28%. The company is scheduled to report first-quarter fiscal 2018 results on Nov 15.

Marvell Technology Group Ltd. (MRVL), based in California, is a fabless designer, developer and marketer of analog, mixed-signal and digital signal processing integrated circuits. The strong demand for the company’s 4G LTE products is a growth driver. The company will be able to meet this demand with its wide range of newly-launched IoT solutions.

Notably, the company beat the Zacks Consensus Estimate in the last four quarters, with an average positive earnings surprise of 25.97%.

This Zacks Rank #3 stock has an Earnings ESP of +0.78%. The company is set to report third-quarter fiscal 2018 results on Nov 28.

Pure Storage Inc. (PSTG), headquartered in Mountain View, CA, is a leading provider of all-flash storage products. The company is benefiting from rapid proliferation of FlashArray, FlashStack and FlashBlade portfolios.

The company’s expanding product portfolio (that includes platforms like NVMe, Purity FlashBlade, 75 blades up to 8 PB of storage, Object Storage, and Active Cluster) is a key catalyst.

This Zacks Rank #3 stock has an Earnings ESP of +8.70%. The company is set to report third-quarter fiscal 2018 results on Nov 28.

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Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
 
Pure Storage, Inc. (PSTG): Free Stock Analysis Report
 
Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report
 
Marvell Technology Group Ltd. (MRVL): Free Stock Analysis Report
 
Facebook, Inc. (FB): Free Stock Analysis Report
 
Apple Inc. (AAPL): Free Stock Analysis Report
 
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