Our proven model shows that HP is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: The Company projects an Earnings Surprise Projection or ESP (Zacks Earnings ESP: A Better Method) of 2.30% for third quarter. That is because the Most Accurate estimate stands at 89 cents while the Zacks Consensus Estimate is lower at 87 cents.
Zacks Rank #2 (Buy): HPQ has a Zacks Rank #2 (Buy). HPQ's Zacks Rank #2, when combined with an ESP of 2.30%, makes a strong case for an earnings beat.
The combination of HP’s Zacks Rank #2 (Buy) and 2.30% ESP makes us very confident in looking for a positive earnings beat on August 21.
What is Driving the Better-Than-Expected Earnings?
Some analysts believe that HP is witnessing an upside in the by upside in PCs (market share gains) and also witnessing some stability in printing and services. So, they expect EPS to improve in the upcoming quarter.
The positive trend is seen in the trailing four-quarter average surprise of 6.42%, which was greatly helped by the 7.41% surprise in the last-reported quarter. This was possible because HP did a good job of controlling expenses and thereby expanding margins especially in printing.
Other Stocks to Consider
Here are some other companies you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
On Aug 17, Zacks Investment Research upgraded Beijing based provider of computer-based testing and testing-related services, ATA Inc. (ATAI-Free Report) to a Zacks Rank #1 (Strong Buy), following solid first quarter 2014 results released on Aug 9.
Why the Upgrade?
One of the leading providers of computer-based testing services in China, ATA surpassed the Zacks Consensus Estimate on both counts in the first quarter of 2014. The company’s earnings of 6 cents surpassed the Zacks Consensus Estimate of 2 cents by 200% and the prior-year quarter level by 50.0% on the back of solid revenue increase and gross profit expansion.
Revenues of $15.0 million beat the Zacks Consensus Estimate of $13.0 million by 12.8% in first quarter 2014. Revenues were up 4.3% year over year on the back of volume growth of billable tests, like CBA exam, and TOEIC and HR Select exams. Gross profit grew 2.8% in the quarter to $3.3 million.
ATAI operates one of the largest authorized test centers throughout China. These testing services allow students to obtain professional recognition. With a large number of students qualifying in China, ATA believes there will be a growing demand for its testing services in the upcoming quarters.
For fiscal 2014, the company expects net revenue to range between $65.66 million and $68.92 million, compared to $59.7 million in the prior year. Adjusted net income is likely to be in the range of $6.02 million to $7.65 million compared to $5.9 million in the prior year.
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