Will Q1 Earnings Hold a Surprise for Equinix (EQIX) Stock?

Equinix Inc. EQIX is set to report first-quarter 2016 results on May 4. Last quarter, the company posted a negative earnings surprise of 5.32%.

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

Factors at Play

Equinix operates across various geographical regions and its increasing popularity among major tech industry players looking for data management should drive revenues in the first quarter.

Acquisitions have been a major growth driver for Equinix and have helped it to expand data center capacity in many of its key markets since 2003. We expect the company’s buyouts of Telecity Group, Bit-isle and Nimbo to boost the top line in the quarter.

Expansion in important markets and consolidation of facilities in existing ones has been an important part of Equinix's core strategy. We believe that Equinix’s focus on offering upgraded technology to attract clients will bolster its revenues as well as profitability in the to-be-reported quarter.

Nevertheless, we remain slightly cautious about the huge capital outlays which may hurt Equinix’s first quarter as well as the full-year profitability. In Mar 2016, the company announced an aggressive expansion plan for the year. To this end, the company has targeted investment worth more than $4.5 billion this year. This will include opening of data centers, expansion of colocation space and acquisitions.

Moreover, increasing competition from established Internet data center operators such as AT&T T, Level 3 Communications, COLT and Verizon will affect product pricing, thereby denting margins.

Additionally, the telecommunications industry is undergoing consolidation. As customers combine businesses, the requirement for co-location space will decline, thus affecting Equinix’s overall growth prospects.

Earnings Whispers

Our proven model does not conclusively show that Equinix will beat estimates this quarter. That 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: ESP for Equinix is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $3.09 per share.

Zacks Rank: Equinix hold a Zacks Rank #2. However, a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are a couple of stocks which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Synopsys Inc. SNPS, with an Earnings ESP of +6.38% and a Zacks Rank #1.

Arrow Electronics Inc. ARW, with an Earnings ESP of +1.42% and a Zacks Rank #2.

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