Applied Materials, Inc. (AMAT) is set to report fiscal first-quarter 2015 results on Feb 11. Last quarter, the company posted in-line results. Let’s see how things are shaping up for this announcement.
Factors at Play
Applied Materials’ fourth-quarter earnings of 27 cents were in line with the Zacks Consensus Estimate. Also, revenues of $2.27 billion were flat sequentially and in line with the Zacks Consensus Estimate.
The company’s margins of 44.2% were down 126 basis points (bps) sequentially but up 221 bps from the year-ago quarter. The year-over-year increase was due to improving mix as well as material cost efficiencies.
Applied Materials has a solid product line. The company is continuously investing in the ongoing transition to larger wafer sizes and smaller process nodes which should expand volumes and the margins over the long run. The ramp up in FinFET, 3D NAND and new display technology will likely be reflected in the first-quarter results. Also, the demand for larger TV screens and better mobile displays could help the company gain shares in the Display business.
For the first quarter, the company expects revenues to be flat to +/-5% sequentially and non-GAAP earning per share within 25–29 cents.
Earnings Whispers
Our proven model does not conclusively show that Applied Materials 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 27 cents. Hence, the difference is 0.00%.
Zacks Rank: Applied has a Zacks Rank #3 (Hold), which, when combined with a 0.00% ESP, makes surprise prediction difficult.
We caution against stocks with 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
You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:
Impax Laboratories Inc. (IPXL), with an Earnings ESP of +72.73% and a Zacks Rank #1 (Strong Buy).
CYS Investments, Inc. (CYS), with an Earnings ESP of +3.13% and a Zacks Rank #1.
Arch Capital Group Ltd. (ACGL), with an Earnings ESP of +0.95% and a Zacks Rank #1.
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