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Semiconductor Stocks' Earnings on Jan 26: INTC, MXIM, MSCC

The fourth-quarter 2016 earnings season has commenced on a positive note, with big banks reporting solid results. As per the latest Earnings Preview report, as of Jan 20, 63 S&P 500 members representing 19.2% of the index's total market capitalization, have already reported quarterly numbers.

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 previous 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 with the previous quarter.

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%. This would be better than the +3.8% growth in third-quarter earnings on +2.3% higher revenues driven by easier year-over-year comparisons for the Energy sector, continuing momentum at Finance and anticipated improvement in Technology results.

Earnings for the Technology sector are anticipated to be up 3.6% on the back of 4.3% higher revenues. Although earnings growth is currently trailing behind last quarter's actual growth rate of 5.2%, revenues are up 4.3% against a reported decline of 0.6%.

We note that only 10.1% of the total market capitalization in the technology sector has reported till now. We expect earnings growth to improve as more technology bigwigs start reporting over the next couple of weeks.

The current week (Jan 23-27) will see releases from 300 companies, out of which 105 companies are S&P 500 members. Notable technology companies include Alibaba BABA , SAP AG SAP , and Seagate Technologies STX among others.

A few semiconductor companies are also slated to report their earnings this week. The industry has been struggling for sometime due to a slowdown in China, strengthening dollar and a secular decline in the PC market. However, rapidly growing Internet of Things (IoT) market is driving growth for chip components to power applications particularly automotive, medical/healthcare and smart devices. This bodes well for semiconductor stocks.

Here we take a look at three semiconductor companies that are set to report their quarterly earnings on Jan 26:

Intel CorporationINTC is likely to beat fourth-quarter 2016 expectations as it has a favorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of +1.33%.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. You can see the complete list of today's Zacks #1 Rank stocks here .

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.

We also note that Intel's results compared favorably with the Zacks Consensus Estimate in all of the last four quarters, resulting in an average positive surprise of 12.14%.

Intel Corporation Price and EPS Surprise

Intel Corporation Price and EPS Surprise | Intel Corporation Quote

Intel's growing focus into areas with better growth prospects, such as the artificial intelligence (AI) and IoT businesses are key catalysts. Moreover, stabilizing PC shipment trend as witnessed in the fourth-quarter 2016 is positive for the company.

Although Intel's shares (up 24.8%) have underperformed the Zacks Semiconductor General industry (up 49.7%) in the last one year, we believe that strong earnings growth driven by these factors will help the stock rebound in 2017. (Read More: Intel to Report Q4 Earnings: A Beat in the Cards? )

On the other hand, Maxim Integrated Products Inc.MXIM 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%.

Maxim's highly profitable and well-diversified core business, solid product portfolio that generates steady design wins, operating efficiency and regular cash returns are key catalysts. However, the company's exposure to the consumer and communications markets increases risks.

Notably, Maxim has beaten the Zacks Consensus Estimate in all of the preceding four quarters with an average positive surprise of 1.05%. Moreover, the company has underperformed the Zacks Semiconductor-Analog & Mixed industry in the past one-year. While the stock has gained 29.9%, the industry posted a return of 41.8% over the same period.

Maxim Integrated Products, Inc. Price and EPS Surprise

Maxim Integrated Products, Inc. Price and EPS Surprise | Maxim Integrated Products, Inc. Quote

Microsemi CorporationMSCC too is unlikely to beat first-quarter 2017 estimates as it has an unfavorable combination of an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). Notably, results have beaten the Zacks Consensus Estimate in all the preceding four quarters. It has an average four-quarter positive surprise of 10.19%.

Microsemi Corporation Price and EPS Surprise

Microsemi Corporation Price and EPS Surprise | Microsemi Corporation Quote

We note that Microsemi shares have gained 79.3% in the past one-year, much better than the Zacks Semi-Analog & Mixed industry's return of 41.8%.

We believe that weakness related to product transition at medical customers, push-out of some communications spending in China and a softer oil & gas market continue to impact revenues. Also, heavy investment in R&D could impact near-term profitability.

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Seagate Technology PLC (STX): Free Stock Analysis Report

SAP SE (SAP): Free Stock Analysis Report

Intel Corporation (INTC): Free Stock Analysis Report

Maxim Integrated Products, Inc. (MXIM): Free Stock Analysis Report

Microsemi Corporation (MSCC): Free Stock Analysis Report

Alibaba Group Holding Limited (BABA): 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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