Arrow Electronics Inc.ARW is set to report fourth-quarter 2016 results on Feb 7. Last quarter, the company posted a positive earnings surprise of 3.31%. Notably, the stock surpassed the Zacks Consensus Estimate in all the trailing four quarters, with an average positive surprise of 2.86%.
Let us see how things are shaping up for this announcement.
Factors to Consider
Arrow Electronics is one of the world's largest distributors of electronic components and enterprise computing products. Moreover, a significant portion of the company's revenues comes from the sales of semiconductors.
As per data compiled by World Semiconductor Trade Statistics (WSTS), after a slow start in the first half of 2016, worldwide semiconductor sales managed to rebound in the second half. According to WSTS, in October and November, global semiconductor sales increased 5.1% and 7.4%, respectively.
Therefore, we believe that benefits from this rebound will be reflected in Arrow Electronics' fourth-quarter results.
Furthermore, the company's results are expected to benefit from the deal with Samsung Electronics Co. Ltd. inked in the third quarter. As per the agreement, Arrow Electronics brought the SAMSUNG ARTIK Smart IoT platform to its global ecosystem of customers and suppliers.
Notably, original equipment manufacturers, contract manufacturers and commercial customers are selecting Arrow's distribution channels for marketing their products. The company's core strength in providing best-in-class services and easy-to-acquire technologies should drive fourth-quarter results. Also, incremental sales from strategic acquisitions, such as Computerlinks, are expected to have a positive impact.
However, the company's increased interest expenses stemming from a huge debt burden remains a major concern. Therefore, vast interest payment obligation may hamper the fourth-quarter bottom line.
Moreover, uncertain economic conditions and competition from the likes of Avnet AVT and Ingram Micro are worries.
Our proven model does not conclusively show that Arrow Electronics is likely to beat the Zacks Consensus Estimate in its upcoming release. 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. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Arrow Electronics is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $2.01 per share. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Zacks Rank: Arrow Electronics has a Zacks Rank #2. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% 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.
Arrow Electronics, Inc. Price and EPS Surprise
Stocks to Consider
Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:
Pandora Media, Inc. P , with an Earnings ESP of +8.11% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .
Twilio Inc. TWLO , with an Earnings ESP of +8.33% and a Zacks Rank #3.
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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.