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What's in Store for Castlight Health (CSLT) in Q2 Earnings?

Castlight Health Inc. CSLT is set to report second-quarter 2017 results on Aug 2.

Notably, the company has a decent track record of earnings surprises. In the trailing four quarters, the company surpassed the Zacks Consensus Estimate thrice while missing the same on one occasion, delivering an average positive surprise of 14.63%.

Last quarter, the company reported a loss of 11 cents per share, wider than the Zacks Consensus Estimate of a loss of 9 cents. Revenues increased 21.7% year over year to $27.75 million, but missed the Zacks Consensus Estimate of $28 million. The company witnessed a churn in smaller and transparency-only customers, which was the primary reason for incurring losses in the quarter.

With the closure of Jiff’s acquisition, Castlight expects second-quarter revenues for the combined company to be approximately $31 million and non-GAAP operating loss of approximately $13 million.

Notably, Castlight has lost 15.2% year to date against the 18.2% growth of its industry.

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

Factors at Play

Castlight’s cloud-based software platform enables enterprises to gain control over their rapidly escalating health care costs. Reduction in operating expenditure led to narrower year-over-year loss. We believe that stringent cost control will continue to add to the bottom line.

Castlight’s acquisition of Jiff at the beginning of second quarter is likely to provide growth opportunities to the company. Following the acquisition, Walmart WMT expanded its contract with Catslight to purchase Jiff functionality.

Recently, the company launched Castlight Complete, a comprehensive health benefits platform for employers, which integrates Jiff capabilities with Castlight’s industry-leading healthcare navigation and decision support technology. We believe the combined offering will expand its customer base. However, gross margin for the combined company is anticipated to be lower as Jiff is in an early stage of launching clients.

In order to reduce churn, Castlight shifted its focus from transparency-only customers to platform customers. The company believes platform customers to be strong and sticky and therefore likely to offset the loss incurred from transparency-only customers.

Moreover, Castlight is undergoing significant investments to expand its product portfolio and acquire new customers. Investment in channel partnership is also expected to lead to good sales yield.

However, Castlight’s products are at a very nascent stage and will take time to contribute meaningfully to its top line in our view.

Castlight Health, inc. Price and EPS Surprise

 

Castlight Health, inc. Price and EPS Surprise | Castlight Health, inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Castlight Healthis likely to beat earnings estimates 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. This is not the case here as you will see below:

Zacks ESP: Castlight Health’sEarnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 15 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Castlight Health’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a couple of companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Kemet Corporation KEM with an Earnings ESP of +11.11% and a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology VSH with an Earnings ESP of +6.06% and a Zacks Rank #1.

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Castlight Health, inc. (CSLT): Free Stock Analysis Report
 
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