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What's in Store for Pure Storage (PSTG) in Q1 Earnings?

Pure Storage Inc. PSTG is set to release its first-quarter fiscal 2018 earnings on May 24. In the last quarter, the company reported a positive earnings surprise of 12.5%. We note that the company has delivered positive surprises in three of the last four quarters resulting in an average positive surprise of 9.57%.

The company reported non-GAAP net loss of 21 cents per share (including stock-based compensation) in the fourth quarter of fiscal 2017, narrower than the Zacks Consensus Estimate of a loss of 24 cents.

Total revenue was $227.9 million, which was up a significant 51.7% year over year and ahead of the Zacks Consensus Estimate of $224 million.

However, improving results failed to provide significant momentum to the share price. We note that Pure Storage has underperformed the Zacks Computer- Storage Devices industry on a year-to-date basis. While the industry gained 14.8%, the stock has declined 12.1% over the same period.

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

Factors to Consider   

The company’s FlashArray line of products has gained substantial traction in both the local and state level data center environments. However, Morgan Stanley’s recent report on Pure Storage suggests that the company’s FlashBlade as well as newly introduced products may have not witnessed a remarkable run in the to-be-reported quarter.

According to Morgan Stanley, increased competition in the low-end market has slowed down Pure Storage’s revenue growth. Notably, the company’s revenue growth rate forecast of 22% to 28% for the first quarter is much lower than over 50% growth rate witnessed for the last several quarters.

Furthermore, the company focuses on research and development, primarily upgrading its existing products, while also developing new ones. The costs incurred for these upgrades and innovations can be a drag on the company’s income in the to-be-reported quarter.

Nevertheless, we note that the recent launch of the company’s first all-NVMe, enterprise-class all-flash array, should have a positive impact in the to-be-reported quarter’s top-line performance.

Earnings Whispers?

Our proven model does not conclusively show that Pure Storage is likely to beat earnings 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. That is not the case here, as you will see below.

Zacks ESP: Pure Storage’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 38 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Pure Storage, Inc. Price and EPS Surprise

Pure Storage, Inc. Price and EPS Surprise | Pure Storage, Inc. Quote

Zacks Rank: Pure Storage carries a Zacks Rank #3, which when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies that, as per our model, have the right combination of elements to post an earnings beat in their upcoming quarter:

Applied Materials, Inc. AMAT with an ESP of +2.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Angie's List, Inc. ANGI with an Earnings ESP of +33.33% and a Zacks Rank #1.

Allied Motion Technologies, Inc. AMOT with an Earnings ESP of +6.45% and a Zacks Rank #3.

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