Semtech (SMTC) To Report Q3 Earnings: What's In The Offing?

Semtech Corporation (NASDAQ:SMTC) is set to report fiscal third-quarter 2019 results on Nov 28. In the last reported quarter, it delivered a positive earnings surprise of 1.85%.

The company’s surprise history has been pretty impressive. It beat estimates in each of the last four quarters, with average of 4.17%.

Coming to share price movement, Semtech’s shares have returned 30.6% on a year-to-date basis against the industry’s decline of 12.4%.

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

Factors at Play

Semtech reported strong fiscal second-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate.

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, along with a specific focus on fast-growing segments and regions.

In the fiscal second quarter, the industrial and communications end markets both witnessed strong demand and increased sequentially, representing 30% and 12% of its total revenues, respectively.

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 third-quarter 2019, management expects revenues on a non-gap basis in the range of $168-$178 million.

Non-GAAP gross profit margin is expected within 61.2-62.2%. Management projects SG&A expenses within $28-$29 million, and research and development expenses of $25-$26 million. Non-GAAP earnings per share are expected in the range of 58-64 cents.

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 the case here as you will see below.

Earnings ESP: The company’s Earnings ESP 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 currently 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

We see a likely earnings beat for each of the following companies:

Lululemon Athletica Inc. (NASDAQ:LULU) has an Earnings ESP of +4.89% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Kroger Co. (NYSE:KR) has an Earnings ESP of +0.58% and a Zacks Rank #3.

Casey's General Stores, Inc. (NASDAQ:CASY) has an Earnings ESP of +6.17% and a Zacks Rank #2.

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