We expect Hewlett-Packard Company (NYSE:HPQ) or H-P to beat expectations when it reports first-quarter 2014 results on Feb 20.

Hewlett-Packard

Why a Likely Positive Surprise?

Our proven model shows that H-P is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (86 cents per share) and the Zacks Consensus Estimate (85 cents per share), stands at +1.18%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: H-P currently carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of H-P’s Zacks Rank #2 and +1.18% ESP makes us very confident in looking for a positive earnings beat.

What is Driving the Better-Than-Expected Earnings?

H-P’s traction in the cloud, security and big data segments are the positives, going forward. Restructuring initiatives and management changes are also expected to keep the company on the growth path.

H-P’s shift to core software business will also help it to achieve long-term profitability. The company’s focus on 3D printing segment could also be a catalyst, going forward. Additionally, the moderation of PC sales declines should act as a positive factor for the company. Moreover, it is noteworthy that H-P has surpassed the Zacks Consensus Estimate in the last three out of the four quarters with an average positive surprise of 5.69%.

However, continuing macroeconomic challenges, tepid IT spending and competition from Lenovo, International Business Machines (IBM) and Oracle(ORCL) are the headwinds, going forward.

Other Stocks to Consider

Orbotech Ltd. (ORBK), with an Earnings ESP of +12.9% and a Zacks Rank #1 (Strong Buy) is another company you may want to consider.

HEWLETT PACKARD (HPQ): Free Stock Analysis Report

INTL BUS MACH (IBM): Free Stock Analysis Report

ORBOTECH LTD (ORBK): Free Stock Analysis Report

ORACLE CORP (ORCL): Free Stock Analysis Report

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