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Can Alarm.Com (ALRM) Call a Surprise in Q1 Earnings?

Alarm.Com Holdings, Inc. ALRM is expected to report first-quarter 2016 results on May 10. Last quarter, the company posted a massive positive earnings surprise of 550%.

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

Factors to Consider

Alarm.Com offers cloud-based security and home automation products. By relying on cloud technology, the company significantly reduces operating costs and allows users to manage their home from anywhere. Users can remotely control any aspect of the home, including security systems, thermostats, light switches and even garage doors through a mobile application. The company also offers wellness and activity tracking software.

The company’s fourth-quarter earnings beat the Zacks Consensus Estimate by 11 cents. Also, revenues of $56.9 million were up 25% year over year. Moreover, SaaS and license revenues rose 25% year over year to $38.7 million.

The company has a differentiated product portfolio and broad dealer network. It is working toward building new service provider relationships, product innovation and international growth. Therefore, this will help the company to penetrate and gain share in the home automation and security market. This will also help in expanding its customer base, thereby driving results.

Alarm.Com is already poised to be a major player in the expanding home automation industry. For the first quarter, the company expects SaaS and license revenues in the range of $39.3–$39.5 million.

However, intensifying competition and an uncertain macro environment could impact results in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Alarm.Com will beat on earnings this quarter. That 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.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 9 cents. Hence, the difference is 0.00%.

Zacks Rank: Alarm.Com’s Zacks Rank #2 increases the predictive power of ESP. But a 0.00% ESP makes surprise prediction difficult.

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 to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Nuance Communications, Inc. NUAN, with an Earnings ESP of +4.76% and a Zacks Rank #1. The company is slated to report second-quarter fiscal 2016 earnings results on May 10.

Synopsys Inc. SNPS, with an Earnings ESP of +6.38% and a Zacks Rank #1. The company is slated to report second-quarter fiscal 2016 earnings results on May 18.

TiVo Inc. TIVO, with an Earnings ESP of +25.00% and a Zacks Rank #1. The company is slated to report first-quarter 2016 earnings results on May 24.

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TIVO INC (TIVO): Free Stock Analysis Report
 
NUANCE COMM INC (NUAN): Free Stock Analysis Report
 
SYNOPSYS INC (SNPS): Free Stock Analysis Report
 
ALARM.COM HLDGS (ALRM): Free Stock Analysis Report
 
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