Palo Alto Networks, Inc. (NYSE:PANW) is set to report third-quarter fiscal 2016 results on May 26, 2016. Last quarter, the company posted a negative earnings surprise of 315%. Moreover, Palo Alto has underperformed the Zacks Consensus Estimate in the trailing four quarters with an average negative earnings surprise of 171.7%.
Let us see how things are shaping up for this announcement.
Factors at Play
Palo Alto Networks allows firms, service providers and government bodies to impose tighter security measures through its network security platform. The company reported wider-than-expected loss in the second quarter, while revenues comfortably surpassed the Zacks Consensus Estimate.
Revenue growth seems to be steady, aided by strength across all its geographical regions and business segments. Also, customer wins coupled with expansion of the existing customer base positively impacted revenues. We believe that the company’s product refreshes will boost revenues, going forward.
The company is also keen on expanding its cloud exposure. Nevertheless, a volatile spending environment and competition from Cisco Systems, Inc. (NASDAQ:CSCO) and Check Point Software Technologies (NASDAQ:CHKP) Ltd. remain concerns.
Earnings Whispers
Our proven model does not conclusively show that Palo Alto Networks will 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: ESP for Palo Alto is 0.00%. This is because the Most Accurate estimate stands at a loss per share of 28 cents, in line with the Zacks Consensus Estimate.
Zacks Rank: Palo Alto’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.
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 some companies, 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:
TiVo Inc. (NASDAQ:TIVO) , with an Earnings ESP of +25.00% and a Zacks Rank #1
Intuit Inc. (NASDAQ:INTU) , with an Earnings ESP of +0.66% and a Zacks Rank #2
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
TIVO INC (TIVO): Free Stock Analysis Report
INTUIT INC (INTU): Free Stock Analysis Report
PALO ALTO NETWK (PANW): Free Stock Analysis Report
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Zacks Investment Research