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Can Microchip (MCHP) Beat Q2 Earnings on Accretive Growth?

Leading semiconductor manufacturer Microchip Technology Inc.MCHP is scheduled to report second-quarter fiscal 2016 results after the closing bell on Nov 4. In the last reported quarter, Microchip's adjusted earnings beat the Zacks Consensus Estimate by a penny. Let's see how things are shaping up for this announcement.

Key Factors in the Second Quarter

Along with the first-quarter fiscal 2016 earnings release, Microchip had announced the acquisition of Micrel for approximately $430 million in cash and issuance of 8,626,795 shares of Microchip's stock. With rapid integration and completion of the share repurchase, Microchip expects the full accretion from this acquisition to be reflected in the financial results by the second half of fiscal 2017. The transaction is also expected to have some effect on the impending results, due to which it has revised its quarterly guidance.

Based on the improving business environment and strong earnings potential with the expedited integration of the Micrel acquisition, Microchip now anticipates non-GAAP earnings per share within 60 cents and 66 cents on revenues of $545 million to $563 million. Non-GAAP gross margin is expected in the range of 57.5% to 57.7%, while non-GAAP net income is anticipated in the band of $129.2 million to $143.0 million.

Microchip is one of the fastest growing providers of 16-bit and 32-bit microcontrollers in the world. The microcontroller business of the company has historically outperformed the industry and is expected to continue the same feat in the soon-to-be-reported quarter.

The Analog business has also become one of the largest analog franchises in the market. In order to further capitalize on this burgeoning business potential, Microchip is developing and introducing a wide range of innovative and proprietary new products. In addition, with a diligent focus on right-sizing the various components of inventory holdings, Microchip has been able to reduce its inventory. With a diligent focus on right-sizing the various components of inventory holdings, Microchip expects to record solid top- and bottom-line growth in the upcoming quarter.

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.

Zacks ESP:Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%.

Zacks Rank: Microchip carries a Zacks Rank #2 (Buy). Though a Zacks Rank #1 (Strong Buy), #2 or #3 (Hold) increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

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:

Callon Petroleum Co. CPE has an Earnings ESP of +66.67% and carries a Zacks Rank #2.

Aquinox Pharmaceuticals Inc. AQXP has an Earnings ESP of +43.90% and holds a Zacks Rank #1.

Merrimack Pharmaceuticals, Inc. MACK has an Earnings ESP of +2.44% and carries a Zacks Rank #3.

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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 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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