Will Robust SaaS Revenues Aid Citrix's (CTXS) Q4 Earnings?

Citrix Systems Inc. (NASDAQ:CTXS) is scheduled to report fourth-quarter 2017 results on Jan 31 after the market closes.

Last quarter, the company recorded a positive earnings surprise of 17.3%. Moreover, it has surpassed estimates in each of the preceding four quarters with an average beat of 8%.
Let’s see, how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Citrix is likely to beat estimates this quarter on the back of its perfect combination of the two key ingredients:

Zacks ESP: Citrix has an Earnings ESP of +0.52%, representing the difference between the Most Accurate estimate — pegged higher at $1.61 per share — and the Zacks Consensus Estimate of $1.60. A positive Zacks ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Citrix has a Zacks Rank #3 (Hold), which incresaes the predictive power of ESP as stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of an earnings beat.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Citrix Systems, Inc. Price and EPS Surprise

Citrix Systems, Inc. Price and EPS Surprise | Citrix Systems, Inc. Quote

What is Driving This Better-than-Expected Earnings?

Software-as-a-Service (SaaS) revenues are again expected to grow strong in the fourth quarter like the last three quarters. This in turn will boost the company’s top line in the period as well. The Zacks Consensus Estimate for fourth-quarter SaaS revenues stands at $48.42 million, higher than $45.81 million reported in the previous quarter.

Moreover, a centralized management of employee desktops will provide greater security, control and cost savings, which might further aid results in the quarter.

The company’s efforts to expand product portfolio are also impressive.Its strong customer base is another positive. Also, the merger between LogMeIn (NASDAQ:LOGM) and Citrix's GoTo business, completed last February, is likely to be value accretive in the quarter to be reported.

Additionally, the company’s endeavors to reward shareholders through dividends and share buybacks are encouraging. In November 2017, the company’s board of directors cleared a share buyback program worth more than $2 billion. It can buyback up to an additional $1.7 billion of the company's common stock under the new authorization.

The company’s attempts to reduce its debt levels are also impressive. This is evident from the fact that the ratio of its long-term debt-to-equity (expressed as a percentage) stands at 69. This compares favorably to the figure of 82.9% for the S&P 500 Index.

However, high costs may hurt the bottom line in the fourth quarter as in the previous one. Additionally, foreign exchange movements are quite a drag on the company’s results in the soon-to-be-reported period.

Other Stocks to Consider

Investors also interested in other stocks worth considering from the broader Computer and Technology sector may check out the following companies with the right combination of elements to beat on earnings in their respective quarters:

Apple Inc. (NASDAQ:AAPL) has an Earnings ESP of +1.56% and a Zacks Rank of 3. The company will report first-quarter fiscal 2018 results on Feb 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Energy Industries, Inc. (NASDAQ:AEIS) has an Earnings ESP of +0.41% and is a Zacks #3 Ranked player. The company will report fourth-quarter results on Jan 30.

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