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Will High Costs Mar Citrix Systems' (CTXS) Q3 Earnings?

Citrix Systems Inc. CTXS is scheduled to report third-quarter 2017 results on Oct 25, after the market closes.

In the second quarter of 2017, the company had delivered a positive earnings surprise to the tune of 4%. It also surpassed the Zacks Consensus Estimate in terms of revenues.

However, things do not look bright for the company in the quarter under review. In fact, the negative sentiment surrounding the stock can be gauged from the Zacks Consensus Estimate for the third quarter, which moved down 12.6% over the last 90 days.

Moreover, shares of Citrix Systems have struggled lately, underperforming the Zacks Software industry on a year-to-date basis. The stock has been down 7.3%, as against the industry’s rally of 29%.

Lets delve deep to find out the factors likely to impact Citrix Systems’ third-quarter results.

We expect high costs to hurt the company’s bottom line in the third quarter of 2017. With the company making significant investments to expand its product portfolio, costs are likely to shoot up. Personnel expenses are expected to be high as well, hurting the bottom line. Moreover, Citrix System’s results in the to-be-reported quarter are liable to be affected by foreign exchange movements as it continues to foray into non-U.S. markets.

Markedly, the company expects net revenues in the band of $685-$695 million. Earnings per share (on an adjusted basis) are projected in the range of $1.02-$1.05. Both figures compare unfavorably to those reported a year-ago.

Revenues from products and licenses are expected to be soft in the quarter under review, thus hurting the top line. The Zacks Consensus Estimate for the quarter’s revenues from products and licenses is pegged at $203 million, 3.8% lower than the reported figure in the second quarter of 2017.

Amid the gloomy scenario, revenues from Software-as-a-Service (SaaS) are expected to be strong in the quarter. The Zacks Consensus Estimate for third-quarter SaaS revenues is pegged at $43.6 million, 5.1% higher than reported figure in the second quarter.

Given this backdrop, investors would keenly await Citrix Systems’ third-quarter results under its new chief executive officer (CEO) — David J. Henshall – appointed in July 2017. Notably, Henshall has succeeded Kirill Tatarinov, who had joined Citrix from Microsoft MSFT. The appointment of Henshall implies that Citrix has had four CEOs in less than two years. In fact, these frequent changes at its helm have contributed to the stock’s underperformance.

We believe that the company’s third-quarter results would be an indicator to whether the appointment of Henshall yields the desired results as Citrix expects to increase its profitability and find favor with shareholders.

What Does Our Model Say?

Our proven model too does not show that Citrix Systems is likely to beat earnings in 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. However, that is not the case as highlighted below.

Zacks ESP: Citrix Systems has an Earnings ESP of -0.09%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Citrix Systems carries a Zacks Rank #4 (Sell) .

As it is we caution against stocks with Zacks Ranks #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Citrix Systems, Inc. Price and EPS Surprise

 

Citrix Systems, Inc. Price and EPS Surprise | Citrix Systems, Inc. Quote

Stocks to Consider

Investors interested in the broader Computer and Technology sector may consider the following stocks, since our model shows that these companies possess the right combination of elements to come up with an earnings beat this time.

QUALCOMM Incorporated QCOM has an Earnings ESP of +1.17% and a Zacks Rank #2. The company will report its fourth-quarter fiscal 2017 earnings numbers on Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMTEK, Inc. AME has an Earnings ESP of +0.54% and a Zacks Rank #3. The company will report its third-quarter earnings numbers on Nov 2.

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