Yahoo! Inc. (YHOO) is set to report second quarter 2013 results on Jul 16. Last quarter, it posted a 36% positive surprise. Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
Yahoo’s search business continues to show signs of improvement, even in the face of tough competition from Facebook, Google and Microsoft. Improvements on the display side are ongoing, although the impact is not apparent just yet.
However, under its new CEO Marissa Meyer, Yahoo has been active on the acquisition front. It acquired multiple start-ups mainly in the mobile space. The acquisitions are part of a strategy to broaden and strengthen Yahoo’s expertise in the mobile segment as adoption of mobile devices such as smartphones and tablets continue to accelerate.
With these acquisitions, Yahoo is picking up a whole lot of engineering talent as well as key technologies and products at a cheaper rate. Yahoo also expects that these acquisitions will enable it to enter the emerging social marketing segment, where its rivals have already established themselves.
Our proven model does not conclusively show that Yahoo is likely to beat earnings this quarter. This is because a stock needs to have both a positive earnings expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.9%.
Zacks Rank #2 (Buy): Yahoo’s Zacks Rank #2 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #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 that they have the right combination of elements to post an earnings beat this quarter:
SanDisk Corp. (SNDK), with an ESP of +4.55% and a Zacks Rank #1 (Strong Buy).
Syntel Inc. (SYNT), with an ESP of +3.81% and a Zacks Rank #1 (Strong Buy).
Scientific Games Corporation (SGMS), with an ESP of +100.00% and a Zacks Rank #2 (Buy).