Microsemi Corporation (MSCC) isslated to report fourth-quarter fiscal 2014 results on Nov 6. In the last-reported quarter, Microsemi recorded a negative earnings surprise of 2.13%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Microsemi Corporation is an original equipment manufacturer of a broad range of high-reliability and analog/mixed signal integrated circuits. The company’s third-quarter revenues were up 1.8% sequentially and 20.5% from the year-ago period to $292.3 million. This was attributed to the strong demand for the company’s products. However, earnings of 46 cents missed the Zacks Consensus Estimate by a penny due to higher-than-expected operating expenses.
Microsemi expects fourth quarter fiscal 2014 revenues in the range of $299–$305 million, up 3.2% sequentially at the mid-point. The Zacks Consensus Estimate for revenues is pegged at $305 million. Management expects to record higher expenses in the soon-to-be-reported quarter due to heavy investments in FPGAs and mixed signal RFs. Earnings per share are expected to be within 62–66 cents, well above the Zacks Consensus Estimate of 51 cents.
The company approved a share repurchase authorization of up to $100 million in September. The strength of Microsemi’s business model reflects its commitment toward returning value to shareholders using strong cash generation capabilities.
Earnings Whispers
Our proven model does not conclusively show that Microsemi is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. 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 52 cents. Hence, the difference is 0.00%.
Zacks Rank: Microsemi currently has a Zacks Rank #3 (Hold). Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:
Expedia Inc. (EXPE) has an Earnings ESP of +11.11% and a Zacks Rank #1 (Strong Buy)
Himax Technologies, Inc. (HIMX) has an Earnings ESP of +37.50% and a Zacks Rank #2
Orbitz Worldwide, Inc. (OWW) – has an Earnings ESP of +7.14% and a Zacks Rank #2
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