SunEdison Semiconductor (SEMI): Earnings Preview For Q1

SunEdison Semiconductor Limited (NASDAQ:SEMI) is expected to report first-quarter 2016 results on May 9. Last quarter, the company posted a negative earnings surprise of 21.05%.

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

Factors at Play

SunEdison Semiconductor’s fourth-quarter loss of 65 cents was wider than the Zacks Consensus Estimate of a loss of 38 cents, primarily due to lower revenues.

Revenues of $181.0 million were down 3.9% sequentially because of a decline in volumes and selling prices.

Despite lower revenues, SunEdison Semiconductor’s gross margin increased sequentially. Continued focus on streamlining manufacturing expenses and reduction in materials costs aided fourth-quarter margins and we expect the trend to continue in the first quarter as well.

Also, significant investments in Silicon-on-insulator (SOI), one of its fast growing products, to expand its capacity should boost growth and profitability.

However, a weak pricing environment and a highly leveraged balance sheet are concerns. Apart from this, increasing competition from the likes of SunPower Corp. and First Solar Inc (NASDAQ:FSLR). add to the company’s woes.

Earnings Whispers

Our proven model does not conclusively show that SunEdison will beat estimates this quarter. That 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: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 49 cents. Hence, the difference is 0.00%.

Zacks Rank: SunEdison Semiconductor carries a Zacks Rank #5 (Strong Sell).

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 could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Intrexon Corporation (NYSE:XON) , with an Earnings ESP of +17.39% and a Zacks Rank #1. The company is slated to report first-quarter 2016 earnings results on May 10, 2016.

Student Transportation Inc. (TO:STB) , with an Earnings ESP of +60.00% and a Zacks Rank #1. The company is slated to report third-quarter fiscal 2016 earnings results on May 12, 2016.

Hormel Foods Corporation (NYSE:HRL) , with an Earnings ESP of +5.26% and a Zacks Rank #1. The company is slated to report second-quarter fiscal 2016 earnings results on May 18, 2016.