Will Hewlett-Packard (HPQ) Surprise This Earnings Season? - Analyst Blog

Hewlett-Packard Company HPQ is set to report the second-quarter fiscal 2014 results on May 22. Last quarter, the company posted positive earnings surprise of 5.88%. Let us see how things are shaping up for this announcement.

Factors this Past Quarter

Hewlett-Packard reported better-than-expected first-quarter results on the back of higher IP sales and cost cutting initiatives which aided margins. The share buybacks also supported earnings.

Going forward, we believe that Hewlett-Packard's strategic focus on the software business will help it to diversify its revenue source which is predominantly dependent on PCs. Additionally, the company's traction in the cloud, security and big data segments are the positives. Hewlett-Packard's probable entry into the 3D printing market should be another growth catalyst given the rapid adoption of 3D technology across industries.

Nonetheless, macroeconomic challenges, shrinking PC industry and tepid IT spending are the challenges in the near term. Competition from International Business Machines and Oracle remain the headwinds, going forward.

Earnings Whispers?

Our proven model does not conclusively show that Hewlett-Packard will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #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 88 cents. Hence, the difference is 0.00%.

Zacks Rank: Hewlett-Packard's Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.

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:

Intuit Inc. INTU, with Earnings ESP of +1.18% and a Zacks Rank #2.

Best Buy Co., Inc. BBY, with Earnings ESP of +5.00% and a Zacks Rank #2.

Nimble Storage, Inc. NMBL, with Earnings ESP of +6.25% and a Zacks Rank #3 (Hold).