Silicon Motion Technology Corp. SIMO is set to report first-quarter 2015 results after the closing bell on Apr 27. Last quarter, the company posted a positive earnings surprise of 9.38%. Encouragingly, in the last four trailing quarters, Silicon Motion has an average positive earnings surprise of 14.61%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Silicon Motion has benefited from its growing SK Hynix eMMC business over the past few months. Also, commencement of the OEM projects has largely contributed to the sale of the company’s SSD controller. However, despite these positive developments, the company anticipates that seasonality in removable storage will continue to act as a headwind, hurting its profitability growth. Management, on the other hand, remains optimistic about impressive performance of the eMMC business, expecting it to act as a strong driver of top-line growth.
As per the preliminary earnings data disclosed this month, Silicon Motion expects first-quarter revenues to trend the higher side of the guidance range of negative 5% to 0%. Further, the company projects non-GAAP gross margin in a range of 51% to 52%, which also marks the higher end of its guidance range of 50% to 52%.
Earnings Whispers
Our proven model does not conclusively show that Silicon Motion will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1(Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.
Negative Zacks ESP: That is because the Most Accurate estimate stands at 37 cents while the Zacks Consensus Estimate is pegged higher at 38 cents. There is a difference of -2.63%. This indicates a likely earnings miss for the shares.
Zacks Rank #3: Silicon Motion’s Zacks Rank #3, when combined with negative Earnings ESP, makes surprise prediction difficult.
Notably, 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 momentum.
Stocks to Consider
Here are some companies which you may consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Apple Inc. AAPL, Earnings ESP of +1.38% and a Zacks Rank #2.
AXIS Capital Holdings Ltd. AXS, Earnings ESP of +13.56% and a Zacks Rank #1.
American Eagle Outfitters AEO, Earnings ESP of +18.18% and a Zacks Rank #2.
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