Leading semiconductor manufacturer Broadcom Corp. (BRCM) is scheduled to report its fourth-quarter 2014 results after the market closes on Jan 29. In the last reported quarter, Broadcom’s adjusted earnings comfortably beat the Zacks Consensus Estimate by 8 cents, making it the fourth consecutive quarterly earnings beat for the company. Let’s see how things are shaping up for this announcement.
Key Factors in the Fourth Quarter
Broadcom is well placed in the fast-growing wired and wireless communications markets, with cutting-edge solutions for a growing number of connected users, who are demanding more content and bandwidth. In particular, strong demand for smartphones and tablets are catalysts for growth. Broadcom also continues to benefit as service providers increasingly deploy high-end devices related to connectivity, bandwidth and content, which enables it to capture a sizeable market share. The continued expansion of pay-TV and Internet access services internationally, especially in China and India, provide significant opportunity for growth.
During the last reported quarter, Broadcom began to execute the wind-down of its cellular base-band business. This is likely to reduce about $700 million in annualized GAAP R&D and selling, general and administrative expenses. The company intends to organically reinvest approximately $50 million of these annualized savings into projects in the Broadband, Infrastructure and Connectivity businesses. The strategic move is expected to strengthen Broadcom’s presence in the area of small cells, embedded processing and low-power connectivity.
At the same time, Broadcom has diligently focused on concrete measures to deliver healthy LTE (Long Term Evolution) revenues, while concentrating on data center innovation and next generation home video products with HEVC (High Efficiency Video Coding). The company expects a steady momentum in broadband, driven by emerging market penetration and new technology adoption in developed markets. We remain encouraged with such inherent growth prospects of the company.
Earnings Whispers
However, our proven model does not conclusively show that Broadcom is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in line earnings.
Zacks Rank: Broadcom’s Zacks Rank #1 (Strong Buy) combined with a 0.00% ESP reduces the predictive power of an earnings beat for the company. Note that stocks with a Zacks Ranks of #1, #2 (Buy) and #3 (Hold) coupled with a positive ESP have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Kemper Corporation (KMPR), earnings ESP of +2.78% and a Zacks Rank #3.
The Kroger Co. (KR), earnings ESP of +2.27% and a Zacks Rank #2.
Arch Capital Group Ltd. (ACGL) earnings ESP of +1.92% and Zacks Rank #1.
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