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Will Lexmark (LXK) Pull Off a Surprise in Q2 Earnings?

Zacks Equity Research
Updated

Lexmark International Inc. LXK is expected to report second-quarter 2016 results on Jul 29. Last quarter, the company posted a positive earnings surprise of 63.5%. Let's see how things are shaping up for this announcement.

Factors at Play

Lexmark’s first-quarter results were not very encouraging, given the earnings miss. Also, both earnings and revenues decreased on a year-over-year basis primarily due to a strong U.S. dollar, a decline in non-MPS revenues, and the ongoing exit of the company from the Inkjet business.

Although Lexmark has a strong market position, reduced demand for traditional printing hardware and overall macroeconomic uncertainties have been dampening demand.

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Also, synergies from the acquisitions of Kofax and Readsoft and renewed focus on the software space could set it back on the growth path. Moreover, the Inkjet exit, software prospects and the MPS approach are positives that will drive shares in the to-be-reported quarter.

However, competition from players like Canon Inc., Xerox Corp. and HP Inc. HPQ is a concern.

LEXMARK INTL Price and EPS Surprise

LEXMARK INTL Price and EPS Surprise | LEXMARK INTL Quote

 

Earnings Whispers?

Our proven model does not conclusively show that Lexmark will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 82 cents. Hence, the difference is 0.00%.

Zacks Rank: Lexmark’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Demand Media, Inc. DMD with an Earnings ESP of +18.61% and a Zacks Rank #3

Amazon.com, Inc. AMZN with Earnings ESP of +37.72% and a Zacks Rank #3

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
HP INC (HPQ): Free Stock Analysis Report
 
AMAZON.COM INC (AMZN): Free Stock Analysis Report
 
DEMAND MEDIA (DMD): Free Stock Analysis Report
 
LEXMARK INTL (LXK): Free Stock Analysis Report
 
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Zacks Investment Research