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Earnings Lined Up for Oct 26: INTC, GOOGL, MSFT, VRSN & CDNS

The technology sector is now in the spotlight as we head into the busiest week of the Q3 earnings cycle.

According to the Zacks Earnings Preview, 87 S&P 500 members or 24.7% of the index’s total membership have reported quarterly numbers as of Oct 20. Of these, approximately 71.3% of the companies posted positive earnings surprises, while 70.1% beat top-line expectations. Earnings of these companies grew 9.4% from the comparable period last year, while revenues were up 7.3%.

The trend this earnings season indicates that we will finally witness back-to-back five quarters of earnings growth after five straight quarters of decline. The report projects that earnings for the S&P 500 index will improve 2.6% from the year-ago period, while total revenues will be up 5%.

Tech Stocks Continue to Outshine

Technology is one of the four sectors expected to report impressive earnings growth. The other three are Oil/Energy, Industrial Products and Construction. Various technology giants, including Alphabet GOOGL, Microsoft MSFT and Amazon AMZN, are scheduled to report their numbers this week. Per the report, total earnings for the tech sector are projected to be up 9.9% on 7.1% higher revenues.

We note that the technology sector has been a strong performer on a year-to-date basis. The sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.

Not All Companies are Poised to Impress

Though the overall tech sector is poised to shine in the quarter to be reported, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment as well as management’s ability to implement operating and strategic plans.

In other words, a company may perform poorly despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.

Let’s See How GOOGL, MSFT, INTC, CDNS and VRSN are Placed

The world’s largest semiconductor company, Intel Corporation INTC is scheduled to report third-quarter 2017 results. We expect this Zacks Rank #2 (Buy) company to post earnings of 80 cents per share and revenues of $15.71 billion. Estimates, when compared with the year-ago quarter’s actual figures, represent almost flat growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intel Corporation Price and EPS Surprise

 

Intel Corporation Price and EPS Surprise | Intel Corporation Quote

Intel’s earnings report will still serve as an important bellwether for the entire technology sector, but the stock has struggled to gain momentum as investors have become increasingly concerned with the chipmaker’s competition. Of late, the company has been sensing the pressure from the likes of NVIDIA and Avanced Micro Devices. Nvidia’s artificial intelligence processors are already at the forefront of the booming AI industry, while AMD has doubled down on its server chips. And both of these companies compete with Intel in the ever-important gaming segment. (Read: Will Competition From Nvidia and AMD Hurt Intel's Earnings?)

However, we anticipate the company’s strong growth at the data-center group segment to cushion its top- and bottom-line results. Increasing demand for data storage and high-performance networks has been propelling this segment’s growth. As the number of smartphones and Internet-connected devices escalates, along with the rise of artificial intelligence and cloud computing, Intel’s Data Center business will expand.

The Zacks Consensus Estimate for the segment’s revenues is pegged at $4.82 billion, representing year-over-year growth of 6%. As Intel’s data-center business accounts for nearly half of the company’s operating margin, the benefit of increase in segment’s revenues will trickle down to the bottom line as well.

We expect Alphabet’s third-quarter 2017 results to benefit from strength in paid clicks, solid advertising revenues, mobile search ads and increasing momentum in the Other Bets segment. Also, increasing use of machine-learning features in Google Maps, YouTube, Gmail and Google Photos will drive top-line growth.

We expect paid clicks to grow in the to-be-reported quarter, driven partly by growing volumes of mobile and TrueView ads on YouTube. YouTube remains a strong contributor, benefiting from the heightening online video consumption. More than a thousand creators are currently engaged in the platform, bringing in a thousand subscribers every day.

The company’s advertising revenues will likely be driven by healthy growth in its mobile search ads, YouTube ads and programmatic advertising. Furthermore, given an encouraging performance of the Other Bets segment during the second quarter, we estimate the segment to continue its momentum this quarter as well.

In addition to this, the increasing use of machine-learning features in Google Maps, YouTube, Gmail and Google Photos will continue to drive top-line growth in the upcoming quarter. (Read: Will Paid Clicks Help Alphabet Beat on Q3 Earnings?)

The Zacks Consensus Estimate for the company’s revenues is pegged at $21.94 billion for the quarter under review, up 20.1% from third-quarter 2016. Moreover, the Consensus Estimate for earnings is pegged at $8.39 per share and the stock has a Zacks Rank #3 (Hold).

Alphabet Inc. Price and EPS Surprise

 

Alphabet Inc. Price and EPS Surprise | Alphabet Inc. Quote

Let’s take a sneak peek at Microsoft which is scheduled to report first-quarter fiscal 2018 results. Microsoft’s cloud computing service — Azure — has been the major growth driver in recent times. In the last quarter, Azure revenues soared a whopping 94% at constant currency on a year-over-year basis. We believe robust adoption of this cloud computing service will continue to drive the company’s top line in the soon-to-be reported quarter. According to data from Synergy Research, Azure trailed only Amazon Web Services (AWS) in terms of market share and revenue growth in the cloud infrastructure services market.

Also, Microsoft now leads the enterprise SaaS market that gained almost 31% year over year to reach $15 billion in quarterly revenues. The outperformance was attributed to the buyout of LinkedIn that contributed revenues of $1.1 billion in the last quarter. Microsoft projects approximately $1.1 billion of revenues from LinkedIn in the fiscal first quarter.

Additionally, we note that strong Office 365 and Windows 10 adoption are other growth drivers for the quarter. (Read: Microsoft's Q1 Earnings to Benefit From Azure Growth)

The Zacks Consensus Estimate for the company’s revenues is pegged at $23.53 billion for the to-be-reported quarter, up 15% from the year-earlier quarter. In addition, the Consensus Estimate for earnings is pegged at 73 cents and the stock has a Zacks Rank #3.

Microsoft Corporation Price and EPS Surprise

 

Microsoft Corporation Price and EPS Surprise | Microsoft Corporation Quote

Another tech company, VeriSign Inc. VRSN is also set to report its quarterly numbers. We expect this Zacks Rank #3 company to post earnings of 98 cents per share and revenues of $291.78 million, marking year-over-year growth of 5% and 1.5%, respectively.

VeriSign, Inc. Price and EPS Surprise

 

VeriSign, Inc. Price and EPS Surprise | VeriSign, Inc. Quote

VeriSign holds a prime position in the highly regulated .com and .net domain industry. The company is the exclusive registrar of the .com, .net and .name domains per its agreements with The Internet Corporation for Assigned Names and Numbers (ICANN). We note that the company continues to benefit from strong demand in the United States as well as international markets. Reportedly, in the last quarter, new .com and .net registrations were 9.2 million compared with 8.6 million in the year-ago quarter. VeriSign reported that .com continued to maintain its position as the largest TLD, followed by .cn (China) and .tk (Tokelau).

Thus, strong gTLD growth, international expansion through IDNs and investments in intellectual properties will boost results, in our view. We believe increasing domain name registration, along with price hikes for domain names, will drive the top line.

However, the negative impact of search engine adjustments on domain monetization and escalating operating expenses related to sales and marketing remain primary headwinds. (Read: VeriSign Q3 Earnings: Is Another Beat in the Cards?)

Lastly, Cadence Design Systems Inc. CDNS is another company scheduled to release earnings numbers. Per the Zacks Consensus Estimate, this Zacks Rank #3 company is likely to report earnings of 34 cents on $482.39 million revenues. Earnings and revenue estimates represent year-over-year growth of 14% and 8.1%, respectively.

We believe Cadence’s third-quarter results will be driven by a number of projects won during the period. The company’s Genus Synthesis Solution was used by Toshiba Electronic Devices and Storage Corporation for the tapeout of ASIC designing. (Read: What's in the Cards for Cadence Design in Q3 Earnings?)

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Alphabet Inc. (GOOGL): Free Stock Analysis Report
 
VeriSign, Inc. (VRSN): Free Stock Analysis Report
 
Microsoft Corporation (MSFT): Free Stock Analysis Report
 
Cadence Design Systems, Inc. (CDNS): Free Stock Analysis Report
 
Intel Corporation (INTC): Free Stock Analysis Report
 
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