Microchip (MCHP) To Post Q4 Earnings: What's In Store?

Microchip Technology Inc. (NASDAQ:MCHP) is set to release fourth-quarter fiscal 2017 earnings on May 9. We note that on average the company has delivered positive earnings surprises in three of the trailing four quarters, including a massive beat of 23.46% in the last quarter.

Moreover, adjusted earnings (excluding stock-based compensation) advanced 64.1% year over year and 11.7% sequentially to $1.05 per share in the quarter. The strong growth was driven by higher net sales, which surged 59.6% from the year-ago quarter to $881.2 million. On a sequential basis, net sales increased almost 1%.

The impressive result has helped the shares outperform the Zacks Semiconductor Analog & Mixed industry on a year-to-date basis. Microchip has returned 17% while the industry has witnessed a gain of 7.7%.

Meanwhile, the company revised sales and earnings guidance for the going-to-be-reported quarter in late February. The company now forecasts non-GAAP net sales to be in the range of down 0.5% to up 2.5% as compared with the earlier guidance range of down 1% to up 3%.

Further, non-GAAP earnings are now expected to be in the range of $1.02–$1.10 per share compared with previous guidance range of $1.01–$1.11 per share.

Let’s see how things are shaping up for this announcement.

Factors at Play

Microchip’s microcontroller business (63.1% of revenues) continues to outperform the industry and has enabled it to gain significant market share. Launch of new innovative products and frequent of updates of existing portfolio are also key catalysts.

Recently launched products like – PIC18F “K42” family and hardware cryptography-enabled microcontroller – CEC1702 – are expected to boost the company’s presence in high demanding markets of touch sensing, automotive, industrial control, Internet of Things (IoT), medical and white goods.

Moreover, the memory business presents growth opportunities based on the expanding portfolio. We note that the newly introduced solution EERAM is a significant addition due to unlimited endurance and safe data storage in case of a power loss.

Earnings Whispers

However, our proven model does not conclusively show that Microchip is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Microchip’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 99 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Microchip carries a Zacks Rank #2, which when combined with Earnings ESP of 0.00%, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Identiv (NASDAQ:INVE) with an Earnings ESP of +6.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

TrueCar (NASDAQ:TRUE) with an Earnings ESP of +11.11% and a Zacks Rank #2.

Impinj (NASDAQ:PI) with an Earnings ESP of +50% and a Zacks Rank #3.

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