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Will VMware (VMW) Disappoint Q3 Earnings Estimates?

Zacks Equity Research

VMware, Inc. (VMW) is set to report third-quarter 2014 results on Oct 21. Last quarter, the company posted a 1.89% positive surprise. The company has posted an average positive earnings surprise of 4.54% over the past four quarters.

Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

VMware remains one of the leading companies in the virtualization and cloud computing market. The company’s innovative product pipeline, strategic partnerships with the likes of Hewlett-Packard, continuous contract wins and robust international sales are expected to drive overall results.

Additionally, acquisitions like Desktone, AirWatch and CloudVolumes significantly expanded VMware’s product portfolio.

However, sluggish IT spending and stiff competition from the likes of Microsoft and Citrix Systems remain a major headwind. Moreover, VMware’s continued investment in the emerging markets, product innovations and acquisitions are expected to weigh on margins in the near term.

We also believe that growing pressure on EMC, which holds majority of the company from Eliott Management, will remain an overhang on VMware’s share price in the near term.

Earnings Whispers?

Our proven model does not conclusively show that VMware is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 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 54 cents. Hence, the difference is of 0.00%.

Zacks Rank: VMware currently has a Zacks Rank #4 (Sell).

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

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Apple Inc. (AAPL), Earnings ESP of +4.62% and a Zacks Rank #2 (Buy).

Facebook (FB), Earnings ESP of +6.25% and a Zacks Rank #2.

Invensense (INVN), Earnings ESP of +10.00% and a Zacks Rank #2.

Read the Full Research Report on AAPL
Read the Full Research Report on VMW
Read the Full Research Report on FB
Read the Full Research Report on INVN


Zacks Investment Research