What's In The Cards For HP Inc. (HPQ) In Q3 Earnings?

HP Inc. (NYSE:HPQ) is set to report third-quarter 2016 results on Aug 24. Last quarter, the company posted a positive earnings surprise of 5.1%. Let's see how things are shaping up for this announcement.

Factors to Consider

HP reported mixed results for the second-quarter of fiscal 2016, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. The year-over-year top-line comparison was unfavorable as well. HP’s top-line performance was hurt primarily by a persistent decline in PC shipments and tepid IT spending.

The persistent decline in PC shipments is a substantial headwind for HP. As the PC business generates over 60% of its total revenue, the reduction in business volume at the segment is a concern. The company is also witnessing a secular decline in this segment due to the ongoing shift toward tablets and smartphones, a space in which it is yet to gain a foothold.

It is worth mentioning that the company recently entered into a definitive agreement to sell its Customer Communications Management (CCM) assets to Open Text Corporation, a Canada-based business software maker. We believe that HP’s latest asset divestment is a part of the company’s restructuring plan. The move will help the company to realign its businesses and focus better on the PC and printing businesses.

However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines (NYSE:IBM) and Accenture add to its woes.

HP INC Price and EPS Surprise

HP INC Price and EPS Surprise | HP INC Quote

Earnings Whispers?

Our proven model does not conclusively show that HP is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass earnings estimates. However, that is not the case here due to the following factors:

Zacks ESP: HP’s ESP is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 45 cents.

Zacks Rank: HP’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies, which you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Broadcom Limited (NASDAQ:AVGO) , with an Earnings ESP of +0.87% and a Zacks Rank #3

Movado Group, Inc. (NYSE:MOV) , with an Earnings ESP of +6.45% and a Zacks Rank #3