Can QLogic (QLGC) Pull Off A Surprise In Q4 Earnings?

QLogic Corp. (NASDAQ:QLGC) is set to report fourth-quarter fiscal 2016 results on May 5. In the last quarter, the company delivered a positive earnings surprise of 36.36%. The company has delivered a four-quarter average surprise of 30.81%. Let’s see how things are shaping up for this announcement.

Factors to Consider

QLogic holds the leading position in the Ethernet market due to its strong product portfolio. In 2015, the company had double-digit lead in terms of market share over its peers. Its strong balance sheet is another big positive. Apart from Ethernet, QLogic is a leading provider of Fibre Channel, and targeted ASICs offerings. The company is likely to benefit from the rapid adoption of cloud computing, which is one of the key drivers in the high-end enterprise data center market.

However, the company’s ongoing restructuring program to streamline its operating expenses is expected to weigh on financials in the near term. Qlogic is reducing investments in some of its non-core businesses in order to focus on the development of new products in its core Fibre Channel and Ethernet products.

Also, a tough macroeconomic environment continues to hurt server sales. This in turn may hurt top-line growth in the near term. Increasing investments in engineering and intensifying competition from peers can also weigh on the company’s profitability.

For the fourth-quarter of fiscal 2016, QLogic expects revenues in a range of $113 million to $119 million. Non-GAAP earnings per share are expected to be between 23 cents and 27 cents, while GAAP earnings are likely to be 7 cents to 9 cents, lower than the non-GAAP figure.

Earnings Whispers

Our proven model does not conclusively show that QLogic 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, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: QLogic has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 19 cents.

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

Stocks to Consider

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Fitbit Inc. (NYSE:FIT) has an Earnings ESP of +175.00% and a Zacks Rank #2 (Buy).

ACI Worldwide, Inc. (NASDAQ:ACIW) has an Earnings ESP of +12.50% and a Zacks Rank #3 (Hold).

Ctrip.com International Ltd. (NASDAQ:CTRP) has an Earnings ESP of +11.43% and a Zacks Rank #3.