VMware (VMW) to Report Q2 Earnings: What's in the Cards?

VMware, Inc.VMW is set to report second quarter 2016 results on Jul 18. Last quarter, the company posted a 1.72% negative earnings surprise.

It has delivered positive earnings surprises in two of the last four quarters. It has an average four-quarter positive surprise of 0.54%.

VMWARE INC-A Price and EPS Surprise

VMWARE INC-A Price and EPS Surprise | VMWARE INC-A Quote

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

Factors to Consider

VMware remains one of the leading companies in the virtualization and cloud computing market. The company's innovative product pipeline, strategic partnerships, continuous contract wins and robust international sales are expected to drive overall results. Additionally, the company continues to make strategic acquisitions, which have significantly expanded its product portfolio.

Despite these, the company has been seeing weakness in its core business for a while. Nonetheless, we expect the top line to benefit from the advancements in its offerings like VMware Workspace ONE, VMware TrustPoint and AirWatch. This apart, the company also has a robust cloud portfolio, which should drive growth in the to-be-reported quarter.

However, the ongoing transition and the uncertainties regarding its parent company EMC Corporation's EMC merger with Dell Inc. remain headwinds. Intensifying competition from its peers such as Microsoft Corp. MSFT and Citrix is also a concern.

For second quarter 2016, the company expects revenues in a range of $1,660 million and $1,710 million, representing 4% to 7% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that VMware is likely to 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: VMware has an Earnings ESP of 0.00% as both the Most Accurate and the Zacks Consensus Estimate stand at 69 cents.

Zacks Rank: VMware currently has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% 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 momentum.

Stock to Consider

Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter:

Post Holdings Inc. POST with an Earnings ESP of +12.77% and a Zacks Rank #1.

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