Maxim Integrated Products, Inc. MXIM is set to report third-quarter fiscal 2015 results on Apr 23. Last quarter, it posted a 13.79% positive surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider
Maxim delivered decent fiscal second quarter 2015 results with earnings beating the Zacks Consensus Estimate and revenues coming in line with the same. Moreover, earnings surpassed management’s guided range, primarily attributable to lower-than-expected operating expenses and higher-than-expected revenues.
Revenues, though within management’s guidance range, were down 2.3% sequentially and 8.6% year over year. The sequential decrease in revenues was primarily due to weaker demand for communications infrastructure products.
The company remains committed to growing its Mobility revenue by diversifying the customer base and targeting new opportunities like wearable devices. Its automotive and industrial businesses are also seeing growth.
Of late, Maxim has been developing technology based on advanced process nodes in collaboration with its foundry partners. New products from this initiative could help it expand margins.
It is also taking steps to restructure operations by the closure of the San Jose fab and discontinuation of investment in its MEMS and touch lines of business. The company’s steps to streamline costs will help it increase its profitability and therefore drive margins.
For the third quarter, Maxim expects revenues in the range of $565–$605 million based on a quarter-end backlog of $378.0 million. Gross margin is expected be in the 52%–56% range on a GAAP basis. It is expected to be in the range of 58%–62% on an adjusted basis (excluding special items). Operating expenditure is expected to be down sequentially. Earnings per share are expected to be 20 cents – 26 cents on a GAAP basis and 32 cents – 38 cents on an adjusted basis. The Zacks Consensus Estimate is pegged at 35 cents (at the midpoint of the company guided range).
Earnings Whispers?
Our proven model does not conclusively show that Maxim will beat estimates 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.
Negative Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at -14.29%. This is because the Most Accurate estimate of 30 cents is lower than the Zacks Consensus Estimate of 35 cents.
Zacks Rank #3 (Hold): Maxim’s Zacks Rank #3 when combined with a negative ESP makes surprise prediction 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.
Stocks to Consider
Here are some companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
SBA Communications Corp. SBAC with Earnings ESP of +38.46% and a Zacks Rank #2 (Buy)
LG Display Co., Ltd. LPL with Earnings ESP of +64.29% and a Zacks Rank #2
DigitalGlobe, Inc. DGI with Earnings ESP of +30.00% and a Zacks Rank #2
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