NVIDIA Corporation NVDA is set to report second-quarter fiscal 2016 results on Aug 6. Last quarter, the company posted a negative earnings surprise of 7.7%. However, it is worth noting that NVIDIA has outperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average positive surprise of 15.5%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Though NVIDIA’s first-quarter fiscal 2016 revenues increased on a year-over-year basis, it lagged the consensus mark. The year-over-year increase can be attributed to growth in gaming, data center, high-performance computing, cloud and automotive platforms. Moreover, strength in the Tegra segment was another positive during the quarter.
Recently, NVIDIA announced the signing of an agreement to acquire TransGaming Inc.’s proprietary cross-platform portability technology for $3.75 million. Headquartered in Toronto, Canada, TransGaming specializes in developing and delivering platform-defining social video game experiences to players around the world. This acquisition will help the company in strengthening its position in the gaming industry.
Furthermore, we believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.
Nonetheless, the continuous decline in PC sales is a cause of concern for NVIDIA’s GPU segment. Competition from the likes of Intel INTC and QUALCOMM Inc. also remains a near-term headwind.
Earnings Whispers?
Our proven model does not conclusively show that NVIDIA will beat earnings this quarter. This 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 11 cents. Hence, the difference is 0.00%.
Zacks Rank: NVIDIA carries a Zacks Rank #4 (Sell). 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
Here are some companies, which you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Walker & Dunlop, Inc. WD, with an Earnings ESP of +5.77% and a Zacks Rank #1 (Strong Buy).
SunEdison, Inc. SUNE, with an Earnings ESP of +13.33% and a Zacks Rank #3 (Hold).
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