What to Expect When Ambarella (AMBA) Reports Q1 Earnings?

Ambarella, Inc. AMBA is set to report first-quarter fiscal 2018 results on Jun 6. Last quarter, the company posted a positive earnings surprise of 8%. Notably, the stock has outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average positive earnings surprise of 59.5%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Ambarella manufactures video compression and image processing technology that is used in a variety of small cameras, computers and mobile phones. The company has a diversified product line, offering devices that fit into five main markets – Security Cameras, Automotive Cameras, Sports & Flying Cameras, Wearable Cameras, and Broadcast Infrastructure Systems.

Of these categories, Ambarella is most noted for its sports camera technology. The company produces a video processing chip, which is a main component in the popular brand of GoPro GPRO action cameras.

However, Ambarella, during its last quarterly results, warned about a possible decline in revenues from GoPro in fiscal 2018. This is because, per the company, GoPro is using a chip from a competitor in its new camera, which will hurt shipment volumes, resulting in revenue decline for Ambarella in the to-be-reported quarter. Moreover, escalating operating expenses are likely to hurt bottom-line growth.

Nonetheless, we are encouraged by the company’s efforts towards diversifying its business and lower dependency on GoPro which is likely to benefit it over the long run. However, we do not expect any material impact of these initiatives on the fiscal first-quarter results.

Earnings Whispers

Our proven model does not conclusively show that Ambarella will beat on earnings 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 at least 3 (Hold) 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 are pegged at 3 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ambarella carries a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

Here are a couple of stocks that you may consider, as our model shows that they have the right combination of elements to post an earnings beat:

Teradyne, Inc. TER, with an Earnings ESP of +7.1% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research Corporation LRCX, with an Earnings ESP of +1.66% and a Zacks Rank #1.

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