Expect Zebra Technologies To Beat Analyst Estimates On Tuesday - Weekly Earnings Preview
Summary
Zebra has been smashing analyst estimates recently, growing at a very solid rate, and is coming into earnings with strong price momentum.
The "smart money" is moderately bullish on the stock as it heads into earnings, with short interest low and institutions buying into the stock.
Zebra releases on Tuesday morning, with the analyst consensus calling for $0.95 EPS and $838 million in sales. We expect the company to beat on both those numbers.
A) Introduction
This week is relatively light on earnings with just 151 companies in the entire NYSE releasing, according to our data provider (Zacks). This report is the first in a series of articles in which we highlight stocks that have a good chance of a significant earnings-related move. The stock we'll be discussing in this article is Zebra Technologies Inc. (NASDAQ:ZBRA).
Earnings are obviously a very critical time for investors, as stocks often see very big moves in their price according to how their numbers come out relative to estimates. We've identified a variety of different factors that investors should watch for that give an indication of whether a company will beat earnings or not. These factors are: the company's track record of beating earnings estimates, the stock's price momentum heading into earnings, and the company's overall growth rate. We've been using these factors to accurately predict earnings for a few months, as evidenced by our very high "Analyst Confidence Score" of 8.3, which is built on over 1,000 estimates on the Estimize platform.
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B) Zebra Technologies Earnings Breakdown
Zebra manufactures and sells printing technologies, which can print barcodes, receipts, ID cards, wristbands, and etc. As we can see from the chart below, Zebra releases on Tuesday morning, with the Wall Street Consensus calling for $0.95 EPS and $837.96 million in sales:
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Zebra has been smashing estimates recently, beating the last quarter EPS consensus by 9.4% and the revenue consensus by 4.2%. It has now beaten on EPS estimates five times in a row, and beaten on revenue estimates six times in a row. Zebra is also growing at a strong clip as well, increasing EPS year-over-year by 21% last quarter and revenue by 15.1%. Stocks that grow at a strong rate are much more likely to beat estimates, as analysts tend to be slow to react to growth. Lastly, we'll take a look at how the stock's price is trading into earnings. The table below shows Zebra's 6-month price performance versus the electronic equipment industry group, technology sector, and overall market averages:
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Zebra technologies has gained over 18% in the last six months, which is much higher than its industry group (2.15%), sector (6.65%), and overall market (4.51%) averages over the same period. Overall, we project Zebra to beat on EPS estimates by a wide margin (+7.5%) and to beat on revenue estimates by a moderate amount (approximately 5%). Zebra's stock price has a habit recently of actually underperforming after it releases great numbers. The stock dropped 1.5% on the day of earnings release last quarter (November 4th, 2014) and dropped 7% the quarter before that (August 5th, 2014). With that being said, it also gained 2.5% on the day of the May 6th release, gained 14.3% on the February 19th earnings release day and gained 8.9% on the November 5th, 2013 earnings release. On average, stocks that beat on earnings estimates tend to go up about 2% on the day of release, though it's tough to predict on a case-by-case basis.
C) Smart Money Breakdown
Another thing we like to look at heading into an earnings release is how the "Smart Money" on the street is playing the stock. We consider the "smart money" to be short sellers, company insiders, and institutions. Each one has an edge over the market in there own way, and we find it pays to watch what they do. A breakdown of what the "smart money" is doing with Zebra is provided below:
It seems like company insiders have recently shed a small fraction of their positions over the last few months, though that mostly follows an overall market trend. Institutions have increased their positions by almost 5% over the last three months, which is much higher than the industry group, sector, and overall market averages (thus putting it in the top 20% decile). Short sellers have also mostly stayed away from the stock, with a very low short float of 2.68%. Overall, the "Smart Money" on the street is neutral to moderately bullish on the Zebra.
In conclusion, our models are quite optimistic on Zebra beating the EPS and revenue consensus projections as they've done so many times before. But given the fact that the stock price has actually declined the last few quarters on an earnings beat, we don't recommend investors to initiate a position before earnings.