Software Stocks' Earnings on Aug 2: CTSH, MSCI, SYMC, DATA

The second-quarter 2018 reporting cycle has crossed the halfway mark. We have already seen plenty of positive earnings surprises and significant momentum on the revenue front.

Per the latest Earnings Preview, total earnings of the 265 S&P 500 members that have reported, constituting 66.2% of the index, are up 23.6% on a year-over-year basis (80.8% of the companies beat EPS estimates). Total revenues are up 10.1% (72.1% of the companies beat top-line estimates).

Second-quarter earnings of S&P 500 companies are anticipated to be up 23.6% from the year-ago quarter on revenues that are estimated to increase 8.8%. This would follow 24.6% earnings growth recorded in first-quarter 2018 on 8.6% revenue growth, the highest growth in almost seven years.

Technology Earnings So Far & Expectations

We believe a surge in demand for data centers and cloud-based platforms has aided earnings growth so far. Demand for augmented/virtual reality devices, advanced driver assisted systems (ADAS), Artificial Intelligence (AI) solutions and Internet of Things (IoT) related software also increased, leading to the splendid figures.

As of Jul 27, earnings reported by S&P 500 technology companies were up 35.3% year over year (90% of the companies beat EPS estimates). Revenues reported by these companies were up 12% from the year-ago quarter (87.1% of the companies beat revenue estimates). Notwithstanding the dismal results of Netflix NFLX and Facebook FB, overall results of the space have been impressive.

Total earnings of S&P 500 technology companies are expected to increase 30.6% (up from the previous expectation of 28.7%) on a year-over-year basis. Total revenues are anticipated to increase 11.8% (up from the previous expectation of 11.6%).

Our research shows that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have high chances of beating earnings estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Meanwhile, we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Upcoming Releases

Let’s take a sneak peek into four software companies that are set to report quarterly earnings on Aug 2:

Cognizant Technology Solutions Corp CTSH is consistently developing its capabilities to gain from the ongoing digital transition, especially from the integration of the new digital framework with legacy technology platforms.

Moreover, Cognizant is expected to benefit from its significant exposure to fast-growing verticals like financial services, health care, retail and manufacturing, which contribute almost 80% of the revenues.

The company’s robust product portfolio and continued efforts toward expansion through strategic partnerships and acquisitions are positives.

Cognizant stock has gained 19% in the past year, outperforming the 16.3% gain of the industry it belongs to. Cognizant has a Zacks Rank #3. (Read more: Will Cognizant Q2 Earnings Gain From Domain Expertise?)

MSCI Inc. MSCI is benefiting from growth of equity ETF-related revenues, non-ETF passive revenues, and exchange-traded futures and options products. The company is also gaining from strong traction in client segments like wealth management, and banks and broker dealers.

Additionally, partnerships with Thomson Reuters and others expand its clientele and penetration.

However, assets under management (AUM) in ETFs linked to MSCI declined 2.6% sequentially to $744.7 billion. This is likely to hurt asset-based fees and does not bode well for MSCI’s top-line growth in the to-be-reported quarter.

MSCI stock has gained 53% in the past year, substantially outperforming the industry. MSCI has a Zacks Rank #4. (Read more: Will MSCI Q2 Earnings Suffer From Lower Asset-Based Fees?)

Symantec Corporation SYMC stands to gain from data breaches as chances of security-related purchases continue to shoot up. The demand for cybersecurity-related products got a boost due to last year’s two back-to-back ransomware attacks, which created global havoc.

However, Symantec’s weaker-than-expected outlook for the fiscal first quarter makes us slightly cautious about its performance. The ongoing internal investigation on some issues raised by a former employee is a major concern. The investigation, which caused the stock to crash early in May, throws light on serious issues, which might severely cost the company.

Symantec stock has lost 34.5% in the past year against the industry’s rise of 32.1%. Symantec has a Zacks Rank #3. (Read more: Symantec's Q1 Earnings: Is a Beat in the Offing?)

Tableau Software DATA is expected to keep on benefiting from increasing demand for business analytics tools in the global market. The company’s transition to a subscription-based model is a positive. Robust customer growth of the company’s commercial and international businesses is driving results.

However, the model transition will be a drag on the company’s billings and license bookings. Additionally, the company also faces intensifying competition from Microsoft’s Power BI and other new as well as established players. This remains a headwind.

Tableau Software stock has gained 61% the past year, substantially outperforming the industry’s  rally of 27.8%. The company has a Zacks Rank #3. (Read more: What to Expect From Tableau Software in Q2 Earnings?)

You can see the complete list of today’s Zacks #1 Rank stocks here.

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