Semiconductor Stocks Earnings Preview: ADI, CREE, SMTC

The second-quarter earnings reporting cycle is drawing to a close. We have results from 454 S&P 500 companies (or 92.1% of the index’s total market capitalization) as of Aug 10. The numbers are bleak, with total earnings down 3.7% from the same period last year, and on revenues lower by 0.7%.

It is now clear that Q2 is headed for the fifth consecutive quarter of earnings decline. Notably, the rate of decline has moderated slightly from the previous quarter.

The technology sector has performed better than expected with giants like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) beating expectations and registering strong growth on a year-over-year basis. We have earnings from over 88.4% of the sector’s total market cap in the index. Total earnings of these tech companies are down 1.2% from the same period last year in spite of 2.5% higher revenues.

Overall, tech sector earnings are expected to be down 0.2% in spite of 2.7% higher revenues compared with the sector’s 4.5% earnings decline irrespective of 0.4% higher revenues in the last reported earnings cycle.

We will have results from semiconductor stocks, namely Cree, Inc. (NASDAQ:CREE) on Aug 16. Analog Devices, Inc. (NASDAQ:ADI) and Semtech Corporation (NASDAQ:SMTC) will report on Aug 17.

Analog Devices recorded a positive earnings surprise of 3.23% in the last quarter. The company outperformed the Zacks Consensus Estimate in each of the last four quarters, with the average positive surprise of 9.26%.

Notably, our proven model shows that Analog Devices is likely to beat the Zacks Consensus Estimate this quarter. This is because it has the right combination of a positive Earnings ESPand a favorable Zacks Rank (Zacks Rank #3 (Hold) or better).

For the fiscal third quarter, the Earnings ESP for Analog Devices is +3.23%. This is because the Most Accurate estimate stands at 78 cents while the Zacks Consensus Estimate is pegged at 76 cents. Meanwhile, the company has a Zacks Rank #3, which increases the predictive power of ESP. Therefore, we are reasonably confident in looking for an earnings beat.

Cree, Inc. recorded a negative earnings surprise of 50.0% in the last quarter. Notably, the company outperformed the Zacks Consensus Estimate twice in the last four quarters, with an average negative surprise of 4.46%.

For the fiscal fourth quarter, Cree has an Earnings ESP of 0.00% given that the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 5 cents. It currently carries a Zacks Rank #3. So, we must keep it unsaid about how the company will perform this time around.

Semtech Corporation delivered a positive earnings surprise of 10.00% last quarter. Notably, Semtech outperformed the Zacks Consensus Estimate thrice out of the trailing four quarters, with an average positive surprise of 18.50%.

For the fiscal second quarter of 2017, Semtech has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 25 cents. The company has a Zacks Rank #3, which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Stay tuned! Check back on our full write-up on earnings releases of these stocks.