Semtech (SMTC) To Report Q1 Earnings: What's In The Offing?

Semtech Corporation (NASDAQ:SMTC) is set to report fiscal first-quarter 2019 results on May 30. In the last reported quarter, it delivered a positive earnings surprise of 2.44%.

The company’s surprise history has been pretty impressive. It beat estimates in each of the last four quarters with an averageof 6.08%.

Coming to share price movement, Semtech’s shares have returned only 21.7% in the past year, outperforming the industry’s growth of 15.96%.

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

Factors at Play

Semtech reported mixed fiscal fourth-quarter 2018 results, with earnings beating the Zacks Consensus Estimate and revenues matching the same.

The company’s improved profitability was driven by differentiated growth drivers and diversification strategy. The key growth drivers for Semtech are product differentiation, operational flexibility, and a specific focus on the fast-growing segments and regions.

However, in the fiscal fourth quarter, the company witnessed weak revenues due to inventory reductions at smartphone customers and softness in the China base station market. Also, industrial and communications end markets witnessed weak demand and both decreased sequentially, representing 27% and 11% of the total revenues, respectively.

Nevertheless, the growing need for more efficient energy management in home and industrial settings, increasing electronic system requirements for mobile devices, and the propagation of green standards will continue to drive demand in these segments.

However, concerns about the company’s exposure to seasonality, a competitive market and foreign exchange risk persist.

For fiscal first-quarter 2019, on a non-GAAP basis, management expects revenues in the range of $147-$153 million. This implies a 7% sequential increase at the mid-point of the guided range.

Non-GAAP gross profit margin is expected within 61.0-61.5%. Management projects SG&A expenses within $26-$27.5 million, and expenditure on research and development of $25-$26 million. Non-GAAP earnings per share are expected in the range of 45-47 cents. This implies a 10% sequential increase at the mid-point of the guided range.

Earnings Whispers

Our proven model does not conclusively show that Semtech will beat on earnings in the to-be-reported 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: The Earnings ESP for the company is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Semtech carries a Zacks Rank #3, which when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

You may consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank.

Booz Allen Hamilton Holding Corporation (NYSE:BAH) has an Earnings ESP of +3.62% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Michael Kors Holdings Limited (NYSE:KORS) has an Earnings ESP of +11.30% and a Zacks Rank of 2.

Microsemi Corporation (NASDAQ:MSCC) has an Earnings ESP of +0.25% and a Zacks Rank #3.

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