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Semiconductor Stocks' Earnings on Jan 24: TXN, CREE & More

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The fourth quarter earnings season has just started with 63 S&P 500 members, representing 19.2% of the index's total market capitalization, having already reported their results.

As of Jan 20, total earnings of these companies are up 4.7% on a year-over-year basis (66.7% of the companies beat EPS estimates) while total revenue is up 2.7% on a year-over-year basis (50.8% of the companies beat top-line estimates).

Notably, earnings and revenue growth numbers are better than the recent quarters and look poised to cross the highest level in the last eight quarters. However, positive earnings surprises are tracking low at this stage compared to the past quarters.

Most of the companies that have reported so far belong to the finance sector. Improved results from the space have boosted the aggregate growth picture. However, excluding finance, the growth picture isn't impressive. The energy sector is showing some signs of improvement with growth turning positive after a prolonged period of decline (eight consecutive quarters).

As per our latest Earnings Preview report, overall fourth-quarter earnings for S&P 500 companies are anticipated to be up 4.8% from the year-ago quarter on revenues that are estimated to increase 3.7%.

Earnings for the technology sector are anticipated to be up 3.6% based on 4.3% higher revenues. Here we take a look at three semiconductor companies that are set to report their quarterly earnings on Jan 24:

Texas Instruments Inc. Price and EPS Surprise

Texas Instruments Inc. Price and EPS Surprise | Texas Instruments Inc. Quote

Texas Instruments IncTXN is likely to beat fourth-quarter 2016 estimates as it has a favorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of +1.24%.You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3 to beat earnings. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Texas Instruments is currently riding high on strengthening auto and industrial markets. The communications and enterprise market is also improving. Personal electronics and other markets remain weak but TI has done well to tackle the challenges.

We remain optimistic about TI's compelling product line, the differentiation in its business and lower-cost 300mm Analog output that should drive earnings. We note that channel inventories remain very low, meaning that demand is likely to remain strong.

Texas Instruments also continues to prudently invest its R&D dollars into several high-margin, high-growth areas of the analog and embedded processing markets. This is gradually increasing its exposure to the industrial and automotive markets and increasing dollar content at customers, while reducing its exposure to the volatile consumer/computing markets.

According to TI's guidance for the fourth quarter, revenues are expected between $3.17 billion and $3.43 billion (down 10.8% sequentially at the mid-point). Earnings for the quarter are expected to be in a range of 76 to 86 cents. Capex target remains at 4% of revenues.

We note that TI's results compared favorably with the Zacks Consensus Estimate in each of the last four quarters, resulting in an average positive surprise of 5.65%. (Read More: Is Texas Instruments Poised to Beat on Q4 Earnings? )

Shares of TI have performed more or less in line with the Zacks Semiconductor General industry over the last one year. While the industry gave a positive return of 49.7%, the stock gained 49.2%.

Cree Inc. Price and EPS Surprise

Cree Inc. Price and EPS Surprise | Cree Inc. Quote

On the other hand, Cree Inc.CREE looks unlikely to beat second-quarter fiscal 2017 estimates as it has an unfavorable combination of a Zacks Rank #3 and an Earnings ESP of 0.00%.

During the last quarter, Cree ended its patent dispute with Feit Electric Company and reached a license agreement with the same. Also, Cree-Infineon's Wolfspeed deal started to show some progress as they filed with the Committee on Foreign Investment in the United States. Moreover, Cree owned Wolfspeed recently collaborated with Ford Motor Company F to develop modules that could boost the efficiency of electric vehicles by up to 10%.

While these developments augur well for the company, increasing competition in the LED space, an imbalance in the demand and supply of manufactured products and a sluggish global scenario could affect the company's results adversely in the to-be reported quarter.

Notably, Cree's results have beaten the Zacks Consensus Estimate in two out of the preceding four quarters with an average positive surprise of 18.54%.

Also, shares of Cree have underperformed the Zacks Semiconductor Discretes industry over the last one year. While the industry gave a positive return of 22.0%, the stock gained only 1.8%.

M/A-Com Technology Solutions Holdings Inc. Price and EPS Surprise

M/A-Com Technology Solutions Holdings Inc. Price and EPS Surprise | M/A-Com Technology Solutions Holdings Inc. Quote

MACOM Technology Solutions Holdings Inc.MTSI too is unlikely to beat fourth-quarter 2016 estimates as it has an unfavorable combination of an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

MACOM provides analog semiconductor solutions for use in wireless and wireline applications across the RF, microwave and millimeterwave spectrum.

During the last quarter, MACOM entered into a definitive agreement with Applied Micro Circuits Corporation to acquire it for approximately $770 million. This will augment MACOM's reach into enterprise and cloud data centers and is likely to have a positive impact on the company's earnings in the to-be reported quarter.

However, MACOM's continuing injunction with Infineon Technologies AG over designing, making, developing, selling or marketing Gallium Nitride on Silicon is likely to affect fourth-quarter results.

Notably, MACOM's results have beaten the Zacks Consensus Estimate in two out of the preceding four quarters. It has an average four-quarter negative surprise of 4.27%.

Shares of MACOM have underperformed the Zacks Semiconductor - Analog and Mixed industry over the last one year. While the industry gave a positive return of 43.6%%, the stock gained only 19.9%.

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Texas Instruments Inc. (TXN): Free Stock Analysis Report

Cree Inc. (CREE): Free Stock Analysis Report

M/A-Com Technology Solutions Holdings Inc. (MTSI): 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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