Leading semiconductor manufacturer Microchip Technology Inc. (MCHP) is scheduled to report its third-quarter fiscal 2015 results after the closing bell on Jan 29. In the last reported quarter, Microchip’s adjusted earnings missed the Zacks Consensus Estimate by a couple of cents. Let’s see how things are shaping up for this announcement.
Key Factors in the Third Quarter
Microchip is one of the fastest growing providers of 16-bit and 32-bit microcontrollers in the world. The microcontroller business of the company continued to outperform the industry and enabled it to gain significant market share.
Microchip expects to continue this momentum and strengthen its position as the best-performing microcontroller franchise in the industry. The company is increasingly expanding its touch business beyond handsets and tablets in areas, such as automotive industrial applications.
The Analog business has also become one of the largest analog franchises in the market. In order to further capitalize on this burgeoning business potential, Microchip is developing and introducing a wide range of innovative and proprietary new products. In addition, with a diligent focus on right-sizing the various components of inventory holdings, Microchip has been able to reduce its inventory.
The Semiconductor Industry Association (SIA) has projected significant growth for the sector in the coming quarters, driven by robust demand for smartphones and automotive electronics. As one of the better-positioned companies in the semiconductor universe, Microchip looks well set to capitalize on the industry’s growth prospects and fortify its position in the industry.
With accelerating bookings in its business driven by robust industry demand and impressive product designs, we remain encouraged by Microchip’s prospects and bullish guidance for the soon-to-be-reported quarter.
Earnings Whispers
Despite healthy bookings on the back of strong demand and robust product designs, our proven model does not conclusively show that Microchip is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in line earnings.
Zacks Rank: Microchip’s Zacks Rank #2 (Buy) combined with a 0.00% ESP reduces the predictive power of an earnings beat for the company. Note that stocks with a Zacks Ranks of #1(Strong Buy), #2 and #3 (Hold) coupled with a positive ESP have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Kemper Corp. (KMPR), earnings ESP of +2.78% and a Zacks Rank #3.
The Kroger Co. (KR), earnings ESP of +2.27% and a Zacks Rank #2.
Arch Capital Group Ltd. (ACGL) earnings ESP of +1.92% and Zacks Rank #1.
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