The earnings season is drawing to a close with 381 S&P 500 members or 82.7% of the index’s total market capitalization having reported quarterly results, per the latest Earnings Outlook. Total earnings of these companies are up 25% on a year-over-year basis on 10.4% higher revenues.
Technology is one of the 14 sectors anticipated to report double-digit earnings growth this quarter. As of Aug 2, total earnings for the sector are up 31.6% on 12.2% higher revenues.
Key Catalysts to Watch Out For
We note that the technology sector fared impressively on a year-to-date basis in the first-half of 2018. The Technology Select Sector SPDR ETF (NYSEARCA:XLK) returned 15.6% in the year-to-date period compared with the S&P 500’s gain of 8.4%.
Solid demand for cloud-based platforms, growing adoption of Artificial Intelligence (“AI”) solutions, Augmented/Virtual reality devices, autonomous cars, cyber security, advanced driver assisted systems (“ADAS”) and Internet of Things (“IoT”) related software and hardware continue to drive the sector.
Improving Internet penetration trends and rapid adoption of 4G Volte technology have been acting as tailwind to tech providers.
Moreover, growth in PC shipment is a key catalyst. Per latest data from Gartner and IDC, the improved PC shipment results were mainly driven by higher demand in business markets due to migration to Windows 10.
Robust increase in overall IT spending is giving further momentum to tech sector. Per the latest report by Gartner, worldwide IT spending is projected to grow 6.2% on a year-over-year basis, to reach $3.7 trillion this year.
However, increasing regulations for social media companies like the implementation of EU’s General Data Protection Regulation is an overhang. Further, the uncertainty created due to the ongoing trade war between the United States and China is also a concern.
How to Make the Right Pick?
Given the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could be a daunting task. Our proprietary methodology, however, makes it fairly simple for you. You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Given below are six technology providers that have the right combination of elements to post an earnings beat this quarter:
Tech Stocks Poised to Smash Estimates This Earnings Season: Science Applications International Corp (SAIC)
Reston, VA-based Science Applications International Corp (NYSE:SAIC) is anticipated to gain from higher spending as proposed in the latest federal government budget, consequently accelerating the pace of contract awards.
Notably, the company has delivered an average positive earnings surprise of 16.48% in the preceding four quarters.
Palo Alto, CA-based Agilent (NYSE:A) is expected to benefit from strengthening end-markets and synergies from strategic acquisitions. Notably, the company has registered an average positive earnings beat of 8.40% in the trailing four quarters.
The company is scheduled to release third-quarter fiscal 2018 results on Aug 14. Currently, Agilent has an Earnings ESP of +1.15% and a Zacks Rank #2.
Luxembourg-based Globant (NYSE:GLOB) is an IT services provider. The company is expected to benefit from diversified clientele and focus on emerging technologies. Further, favorable foreign exchange rate is expected to positively impact margin expansion.
Notably, the company has delivered an average positive earnings surprise of 2.71% in the preceding four quarters.
The company is slated to report second-quarter fiscal 2018 results on Aug 23. Currently, Globant has an Earnings ESP of +1.28% and a Zacks Rank #2.
Santa Clara, CA-based NVIDIA (NASDAQ:NVDA) is well poised to gain from robust adoption of its Volta processors. Further, growth in GeForce GPUs and strength in gaming, data center, cloud and automotive platforms are positives.
We note that the company surpassed the Zacks Consensus Estimate in the trailing four quarters delivering an average positive earnings beat of 40.10%.
NVIDIA has a Zacks Rank #3 and an Earnings ESP of +0.48%. The company is set to release second-quarter fiscal 2019 results on Aug 16.
Headquartered in San Jose, CA, Cisco (NASDAQ:CSCO) is benefiting from expanding footprint in the rapidly growing security market. Synergies from acquisitions, order strength and improving traction of the subscription-based model are key growth drivers.
Notably, the company has delivered an average positive earnings surprise of 2.50% in the preceding four quarters.
This Zacks Rank #3 stock has an Earnings ESP of +0.36%. The company is set to report fourth-quarter fiscal 2018 results on Aug 15.
Sunnyvale, CA-based, NetApp (NASDAQ:NTAP) is gaining from new business opportunities driven by transition to data fabric strategy (a software-defined approach to data management). Robust product adoption, increasing deal wins and expanding customer base across varied geographies are expected to aid growth.
Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 11.02%.
NetApp has Zacks Rank #3 stock an Earnings ESP of +1.12%. The company is set to report first-quarter fiscal 2019 results on Aug 15.
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