Broadcom Corp (BRCM) is scheduled to report its second-quarter 2014 results after the closing bell on Jul 22. In the last reported quarter, the reported earnings of the company beat the Zacks Consensus Estimate by 3 cents. Let’s see how things are shaping up for this announcement.
Factors to Consider
Broadcom intends to increase its focus and competitiveness in the broadband, infrastructure and connectivity businesses. The company is actively widening business opportunities in the Internet-of-Things (IoT) space and continues to expand its wearable technology portfolio as an early entrant to tap the growing market.
The company expects steady momentum in broadband in the imminent future, driven by emerging market penetration and new technology adoption in developed markets. Broadcom is focused on the most innovative technologies related to connectivity, bandwidth and content, which enables it to capture a sizeable market share.
However, Broadcom intends to exit the cellular baseband business due to intense competition. A considerable increase in R&D expenses for developing cellular baseband products has lowered Broadcom’s mobile and wireless operating income in the past two years. The successful sale of the cellular baseband business is expected to result in approximately $700 million reduction in GAAP research and development and selling, general and administrative expenses annually.
We also remain concerned about the pressure on margins with the introduction of new products and integration of new acquisitions. Operating expenses continue to grow following increased R&D spending. This might impair the long-term growth prospects of the company.
Earnings Whispers
Our proven model does not conclusively show that Broadcom will beat the Zacks Consensus Estimate 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. This is not the case here as you will see below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at 0.00%. This is because both the Most Accurate estimate and Zacks Consensus Estimate currently stand at $1.17.
Zacks Rank #1 (Strong Buy): Broadcom’s Zacks Rank #1 (Strong Buy) when combined with a 0.00% ESP makes surprise predictions 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.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat in the future.
Arch Capital Group Ltd. (ACGL) earnings ESP of +5.10% and Zacks Rank #2 (Buy).
ConocoPhillips (COP) earnings ESP of +3.73% and Zacks Rank #1 (Strong Buy).
Clayton Williams Energy, Inc. (CWEI), earnings ESP of +4.97% and Zacks Rank #1 (Strong Buy).
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