Cypress Semiconductor Corporation (CY) is set to report fourth-quarter 2014 results on Jan 22. Last quarter, it posted a 12.5% positive earnings surprise. Let’s see how things are shaping up for this announcement.
Factors at Play
Cypress’ third-quarter earnings of 9 cents per share beat the Zacks Consensus Estimate by a penny on the back of higher gross margins and solid expense control. Also, revenues were up sequentially backed by improvement in all the divisions, except the Programmable Systems Division (PSD).
Gross margin of 51.7% was down 20 basis points (bps) sequentially due to unfavorable product and customer mix.
For the fourth quarter, Cypress expects revenues in the range of $180.0–$185.0 million, and gross margin to be down slightly to 53%, which will vary with manufacturing product mix. Non-GAAP earnings per share are likely to range within 13–15 cents.
Earnings Whispers?
Our proven model does not conclusively show that Cypress is likely to 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 7 cents. Hence, the difference is 0.00%.
Zacks Rank: Cypress’ Zacks Rank #2 (Buy) 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:
The Allstate Corporation (ALL), with an Earnings ESP of +3.05% and a Zacks Rank #1 (Strong Buy).
MGIC Investment Corp. (MTG), with an Earnings ESP of +35.71% and a Zacks Rank #1.
Wabash National Corp. (WNC), with an Earnings ESP of +4.35% and a Zacks Rank #1.
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