Can Quality Systems (QSII) Pull A Surprise In Q4 Earnings?

Irvine, CA-based Quality Systems, Inc. (NASDAQ:QSII) , a developer and marketer of healthcare information systems, is expected to report fourth-quarter fiscal 2017 results on May 19.

Quality Systems’ track record has been quite impressive, comfortably beating estimates in three of the trailing four quarters. In the last reported quarter, the company delivered a positive earnings surprise of 16.67%, bringing the four-quarter average to 5.91%. Let’s see how things are shaping up prior to this quarter.

Factors at Play

Quality Systems’ steady focus on its expansion in the Revenue Cycle Management (RCM), population health and interoperability solution markets are expected to reap rich dividends in the fourth quarter of fiscal 2017.

However, a sluggish economy, increasing competition and a strict regulatory environment remain headwinds for the company. Although a recurring revenue stream is a positive for Quality Systems, it mostly comes from the lower margin Electronic data interchange (EDI) and RCM services.

Moreover, unfavorable foreign exchange will consistently hurt the company’s results in the immediate future. Additionally, higher capital expenditure on product development along with persistent decline in sales is expected to keep margins under pressure.

Overall the company projects revenues in the band of $501 million to $507 million, for fiscal 2017. Adjusted earnings are forecasted in the range of 75-81 cents per share, in the same time frame.

A glimpse at the stock’s price performance over the past three months reveals a loss of almost 9.95%. The stock’s current return thus compares unfavorably with the Zacks categorized Medical Information Systems sub-industry’s return of 7.84% over the same time. However, with a long-term expected earnings growth rate of 12.67%, the stock has solid potential for further appreciation.

Earnings Whispers

Despite a streak of positive developments, our quantitative model doesn’t conclusively point to an earnings beat 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: The Earnings ESP for Quality Systems’ is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 17 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Quality Systems’ carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat:

Best Buy Co. Inc. (NYSE:BBY) has an Earnings ESP of +12.50% and a Zacks Rank #3. On average, the stock delivered a positive surprise of almost 27.70% in the last four quarters.

Global Partners LP (NYSE:GLP) delivered a positive surprise of almost 96.55% in the trailing four quarters. It has an Earnings ESP of +233.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Raymond James Financial, Inc. (NYSE:RJF) has an Earnings ESP of +3.45% and a Zacks Rank #1. The stock delivered a positive surprise of almost 14.4% in the last four quarters.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>