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