Can Microchip (MCHP) Surprise this Earnings Season? - Analyst Blog

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Leading semiconductor manufacturer Microchip Technology Inc. ( MCHP ) is scheduled to report its fourth-quarter fiscal 2014 results after the closing bell on May 6. In the last reported quarter, Microchip's adjusted earnings exceeded the Zacks Consensus Estimate by 7 cents. Let's see how things are shaping up for this announcement.

Growth Factors in the Fourth Quarter

Microchip recently completed the acquisition of integrated circuits (IC) manufacturer Supertex Inc. for a cash consideration of $33 per share. This strategic purchase will enable Microchip to expand in the Medical, Industrial and Lighting verticals. Microchip is also expected to leverage Supertex' strong domain knowledge in high voltage analog and mixed signal technologies to achieve significant operating synergies and create cross-selling opportunities. Consequently, the acquisition is anticipated to be accretive to Microchip's non-GAAP earnings per share.

Microchip is one of the fastest growing providers of 16-bit and 32-bit microcontrollers in the world. Microcontroller business continues to grow at a rapid pace and accounts for a large chunk of the company's total business. The company shipped its 13 billionth cumulative microcontroller in Nov 2013 - a milestone reached just seven months after shipping its 12 billionth microcontroller in April. Microchip expects to continue this momentum to further consolidate its position as the best performing microcontroller franchise in the industry.

With nine consecutive quarters of sequential growth, the Analog business has also become one of the largest analog franchises in the industry. In order to further capitalize on this burgeoning business potential, Microchip is developing and introducing a wide range of innovative and proprietary new products. All these initiatives augur well for the long-term growth prospects of the company.

Earnings Whispers

Despite healthy bookings on the back of strong demand and robust product designs, our proven model does not conclusively show that Microchip is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.

Zero Earnings ESP : Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at 0.00%. This indicates a likely in line earnings for the shares.

Zacks Rank #2 (Buy): Microchip's Zacks Rank #2 increases the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. However, when combined with 0.00% ESP, we fail to conclusively predict an earnings surprise for Microchip. Meanwhile, we caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement.  

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Canadian Natural Resources Limited ( CNQ ), earnings ESP of +8.22% and Zacks Rank #2 (Buy).

Cherry Hill Mortgage Investment Corporation ( CHMI ), earnings ESP of +7.84% and Zacks Rank #2.

Callon Petroleum Company ( CPE ), earnings ESP of +25.00% and Zacks Rank #2.



CHERRY HILL MTG (CHMI): Free Stock Analysis Report

CDN NTRL RSRCS (CNQ): Free Stock Analysis Report

CALLON PETE-DEL (CPE): Free Stock Analysis Report

MICROCHIP TECH (MCHP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: IC , CHMI , CNQ , CPE , MCHP

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