Will Lexmark (LXK) Pull Off A Surprise In Q2 Earnings?

Lexmark International Inc. (NYSE:LXK) is expected to report second-quarter 2016 results on Jul 29. Last quarter, the company posted a positive earnings surprise of 63.5%. Let's see how things are shaping up for this announcement.

Factors at Play

Lexmark’s first-quarter results were not very encouraging, given the earnings miss. Also, both earnings and revenues decreased on a year-over-year basis primarily due to a strong U.S. dollar, a decline in non-MPS revenues, and the ongoing exit of the company from the Inkjet business.

Although Lexmark has a strong market position, reduced demand for traditional printing hardware and overall macroeconomic uncertainties have been dampening demand.

Also, synergies from the acquisitions of Kofax and Readsoft and renewed focus on the software space could set it back on the growth path. Moreover, the Inkjet exit, software prospects and the MPS approach are positives that will drive shares in the to-be-reported quarter.

However, competition from players like Canon Inc., Xerox Corp (NYSE:XRX). and HP Inc. (NYSE:HPQ) is a concern.

Earnings Whispers?

Our proven model does not conclusively show that Lexmark will beat earnings 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: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 82 cents. Hence, the difference is 0.00%.

Zacks Rank: Lexmark’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Demand Media, Inc. (NYSE:DMD) with an Earnings ESP of +18.61% and a Zacks Rank #3

Amazon.com, Inc. (NASDAQ:AMZN) with Earnings ESP of +37.72% and a Zacks Rank #3