Software Stocks Earnings On Jan 31: MSFT, CTXS, PYPL & CDNS

 | Jan 29, 2018 10:02PM ET

Technology sector earnings gain steam in this week of the Q4 reporting cycle. Notably, the technology sector has been witnessing an upside since the last year on the back of innovative ideas and technological advancements. Driverless cars, facial recognition payments technology, advancements in artificial intelligence, advanced driver assisted systems (ADAS), increased demand for cloud storage and Internet of Things (IoT) related software are aiding growth.

Per the latest Earnings Preview, Technology is one of the five sectors anticipated to report double-digit earnings growth with the other four being Oil/Energy, Basic Materials, Industrial Products and Construction. Per the report, total earnings for the tech sector are projected to be up 16.8% on 9.3% higher revenues.

However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment, as well as management’s ability to implement operating and strategic plans.

In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.

Notably, our research shows that the chance of beating earnings estimates is high when a stock carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Let’s see what’s in store for these four software stocks, all of which are expected to release quarterly numbers on Jan 31.

Microsoft Corporation (NASDAQ:MSFT) , a broad-based technology provider, is set to release its second-quarter fiscal 2018 results. Microsoft is likely to beat expectations as it has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +0.21%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Microsoft’s revenues is pegged at $28.35 billion, representing an 8.8% year-over-year increase. The consensus estimate for earnings stands at 86 cents per share, reflecting an increase of 3.6% from the year-ago actual figure.

The company’s Azure Cloud Platform is likely to be a major contributor to growth. In the last few years, Microsoft has strengthened its position in public cloud service space through acquisitions and data center expansions. Notably, revenues from Azure increased 89% in the first quarter. The trend is likely to continue in the to-be-reported quarter as well. Additionally, strong adoption of its Office 365 and Windows 10 is also anticipated to drive second-quarter revenues. (Read more: Will Microsoft's Q2 Earnings Prove Personal Computing Is Back?)

Microsoft Corporation Price and EPS Surprise