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Lexmark International Inc. (LXK) is set to report first-quarter 2014 results on Apr 22. Last quarter, the company posted a positive earnings surprise of 8.26%. Let’s see how things are shaping up for this announcement.

Factors This Past Quarter

Lexmark’s fourth-quarter results were impressive as the company witnessed strong revenue growth across all the business segments and improved Imaging Solutions and Services (ISS) performance. However, the first-quarter guidance was disappointing, reflecting the Inkjet exit and macro uncertainty.

It is encouraging to note that Lexmark’s transition of business model from low-margin printer sales to high-margin process management software services, Managed Print Services (MPS) and Perceptive bodes well. Moreover, its laser printing hardware and multifunction peripheral (MFP) printer business have yielded positive results.

Additionally, Lexmark’s dominance in the MPS market is supported by the large number of deal wins. Though constant pricing pressure from competitors such as Canon Inc., Xerox Corp. (XRX) and Hewlett-Packard (HPQ), and a high debt burden will be concerns, we expect Lexmark to improve its margins with increased focus on software and services.

Earnings Whispers?

Our proven model does not conclusively show that Lexmark will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 87 cents. Hence, the difference is 0.00%.

Zacks Rank: Lexmark’s Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.

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

Other Stocks to Consider

Another company that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter is:

Amazon.com Inc. (AMZN) has an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).

 
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