Semiconductor Stocks' Earnings On May 1: AMD, IDTI & AEIS

The first-quarter earnings season has picked up pace, with results from 181 S&P 500 members or 40% of the index’s total market capitalization already out (as of April 26).

As per the latest Earnings Outlook, total earnings of these companies are up 10% on a year-over-year basis (75.7% of the companies beat EPS estimates) while total revenue is up 4.3% on a year-over-year basis (64.1% of the companies beat top-line estimates).

Notably, earnings and revenue growth numbers are significantly better than investor expectations. In fact, growth is on track to reach its highest level in almost three years. We believe that continuation of these trends through the rest of this earnings season will serve as a reassuring development for the market.

Overall first-quarter earnings for S&P 500 companies are anticipated to be up 9.7% from the year-ago quarter on revenues that are estimated to increase 5.9%. This would be better than the +7.4% growth in fourth-quarter earnings on +4.8% higher revenues. Finance, Technology, Industrial Products, and Basic Materials are expected to post double-digit earnings growth.

We note that almost 25.8% of the total market capitalization in the technology sector has reported till now. Total earnings are up 13.9% on a year-over-year basis (76.5% of the companies beat EPS estimates) while total revenue is down 0.1% on a year-over-year basis (70.6% of the companies beat top-line estimates).

Earnings for the Technology sector are anticipated to be up 11.8% on the back of 6.1% higher revenues, driven by strong growth from the semiconductor industry.

The industry is anticipated to benefit from rapidly growing cloud computing as well as Internet of Things (IoT) markets, which are driving growth for chip components to power applications particularly automotive, medical/healthcare and smart-connected devices.

Here we take a look at three semiconductor companies that are set to report their quarterly earnings on May 1:

Advanced Micro Devices (NASDAQ:AMD) is unlikely to beat first-quarter 2017 expectations as it has an unfavorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 to beat earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

However, we note that AMD’s results compared favorably with the Zacks Consensus Estimate in the trailing four quarters, resulting in an average positive surprise of 35.76%.

We believe that AMD’s improving position in key markets – like virtual reality (VR) and augmented reality (AR), gaming and parallel processing – driven by the launch of Radeon and Ryzen chips is a key catalyst. (Read More: What's in Store for Advanced Micro in Q1 Earnings?)

AMD has also outperformed the Zacks Electronics Semiconductors industry on a year-to-date basis. While the stock gained 20.1%, the industry returned 17.3%.

Similarly, Advanced Energy Industries Inc. (NASDAQ:AEIS) looks unlikely to beat first-quarter fiscal 2017 estimates as it has an unfavorable combination of a Zacks Rank #3 and an Earnings ESP of 0.00%.

Notably, Advanced Energy has beaten the Zacks Consensus Estimate in all of the preceding four quarters with an average positive surprise of 17.10%. Moreover, the company has outperformed the Zacks Semiconductor Equipment - Wafer Fabrication industry on a year-to-date basis. While the stock has gained 37%, the industry posted an increase of 25.2%.

Integrated Device Technology Inc. (NASDAQ:IDTI) is unlikely to beat fourth-quarter 2017 estimates as it has an unfavorable combination of an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). Notably, results have beaten the Zacks Consensus Estimate in all the preceding four quarters. It has an average four-quarter positive surprise of 8.27%.

Integrated Device products continue to gain traction in the computing, communications and automotive markets. However, increasing competition is a significant headwind that will weigh on share price in 2017.

We note that shares have gained 4.6% on a year-to-date basis, worse than the Zacks Electronic Semiconductors industry’s rise of 18.2%.

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