Is A Surprise In Store For Model N (MODN) In Q2 Earnings?

Model N Inc. (NYSE:MODN) is scheduled to report second-quarter fiscal 2017 results on May 8. Notably, the stock has beaten the Zacks Consensus Estimate in three of the preceding four quarters with an average positive earnings surprise of 11.98%.

Last quarter, the company posted a positive surprise of 27.59%. Moreover, the loss figure of 21 cents per share was narrower than the year-ago quarter loss of 26 cents.

Model N forecasts revenues between $33.5 and $34 million for the second quarter. The Zacks Consensus Estimate is currently pegged at $33.75 million. Non-GAAP loss from operations is expected to be in the range of $6.0 million to $6.5 million. Further, non-GAAP net loss is expected to be in the range of 26 cents to 28 cents per share.

We note that the positive earnings surprises along with positive guidance provided significant momentum to the share price on a year-to-date basis. While the Zacks Internet Software industry has gained 12.7%, Model N returned 26% in the same period.

Factors to Consider

Model N provides revenue management solutions for life science and technology industries. The company continues to expand its product portfolio post the Revitas acquisition. Also, a growing customer base and cost synergies from acquisitions are likely to benefit the company. The company continues to win deals both in the life sciences and high technology market that will drive top-line growth.

However, sluggish transition rate from on-premise to cloud and ongoing consolidation in the technology sector are anticipated to hurt results. Moreover, pricing pressure as a result of stiff competition from SAP, I-Many Inc. and Symphony Teleca Corp. may impact profitability in the near term.

Earnings Whispers

Our proven model does not conclusively show that Model N is likely to beat estimates 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: The Earnings ESP for Model N is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 35 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Model N currently 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 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

Arrow Electronics, Inc. (NYSE:ARW) with an Earnings ESP of +1.73% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

TrueCar (NASDAQ:TRUE) with an Earnings ESP of 11.11% and a Zacks Rank #2.

Identiv (NASDAQ:INVE) with an Earnings ESP of 6.67% and Zacks Rank #2.

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