Amphenol (APH) Q4 Earnings: Stock Likely to Disappoint?

Diversified electronics manufacturer Amphenol CorporationAPH is scheduled to report fourth-quarter 2016 results before the opening bell on Jan 25. In the last reported quarter, adjusted earnings comfortably exceeded the Zacks Consensus Estimate by 5 cents. Amphenol has beaten earnings estimates in each of the trailing four quarters with an average positive earnings surprise of 5.7%. Let's see how things are shaping up for the upcoming results.

Key Factors in the Fourth Quarter

Amphenol's top-line growth is expected to benefit from an improved end-market demand, new product rollouts, and market share gains. Demand continues to be strong in automotive industrial, mobile networks and military markets. The diversification in end markets with a consistent focus on technology innovation and customer support through all phases of the economic cycle is likely to help the company achieve solid top-line growth.

During the fourth quarter, Amphenol acquired SGX Sensortech, a Switzerland-based manufacturer of air quality sensors that are used in a variety of automotive and industrial applications. The company expects the transaction to strengthen its global foothold and augment its revenues through a complementary product portfolio.

However, Amphenol conducts businesses in major foreign currencies due to its worldwide operations and non-U.S. markets usually account for the lion's share of its net sales. Unfavorable movement in foreign currency exchange rates often adversely impact sales, thereby affecting long-term growth to some extent. Amphenol attempts to minimize currency exposure risk by manufacturing its products in the same country or region in which the products are sold, thereby generating revenues and incurring expenses in the same currency. Despite these attempts, the company is susceptible to volatility in foreign exchanges, which is likely to hurt its bottom line.

Amphenol Corporation Price and EPS Surprise

Amphenol Corporation Price and EPS Surprise | Amphenol Corporation Quote

Amphenol expects seasonality to impact sales in the mobile network market. In addition, the company anticipates lower sales from the mobile devices market due to a challenging macroeconomic environment. Bulk of Amphenol's revenues comes from sales to the communications industry, demand for which is subject to rapid technological change. These markets are also dominated by several large manufacturers and operators who exert significant price pressure on Amphenol. Furthermore, increasing cost of raw materials is a matter of concern and is likely to be an additional drag on profitability.

Earnings Whispers

Our proven model does not conclusively show that Amphenol is likely to beat earnings this quarter as it does not possess the key components. 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. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Amphenol has a Zacks Rank #4 (Sell).

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

Stocks to Consider

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

Seagate Technology plc STX , with an Earnings ESP of +1.87% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

TE Connectivity Ltd. TEL , with an Earnings ESP of +1.00% and a Zacks Rank #2.

Corning Incorporated GLW , with an Earnings ESP of +2.27% and a Zacks Rank #2.

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Seagate Technology PLC (STX): Free Stock Analysis Report

TE Connectivity Ltd. (TEL): Free Stock Analysis Report

Amphenol Corp. (APH): Free Stock Analysis Report

Corning Inc. (GLW): 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 Nasdaq, Inc.

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

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