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Microsemi Corporation is set to report its third quarter 2013 results on Jul 25. In the prior quarter, the company posted a 7% positive earnings surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Microsemi reported a disappointing second quarter due to weakness in the communications, aerospace and industrial markets. Although Microsemi has benefited from growing electronic content in the defense & security space, lower Department of Defense (DoD) spending due to U.S. military budget constraints impacted its top line.

However, Microsemi’s gross margin improved due to growing sales of new higher-margin products and a reduction in operating costs due to headcount reduction. Management is also positive that demand in the communications market may improve and believes that key customers such as AT&T will generate steady demand.

Earnings Whispers?

The Zacks Consensus Estimate for the third quarter stands at 38 cents per share while that for fiscal 2013 stands at $1.55.

Microsemi posted a positive surprise in the second quarter of 2013 and negative surprises in the first and fourth quarters of 2012. This led to an average positive surprise of 0.74% for the preceding four quarters.

No estimate revisions were noticed for both the third quarter and fiscal 2013 over the past 30 days. As a result, the Zacks Consensus Estimate has remained unchanged for both the periods.

The chances of a big surprise are unlikely given the lack of catalysts during the quarter. The stock carries a Zacks Rank #3 (Hold).

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Our model states that a stock needs to have both a positive Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 to beat earnings estimates. You could, therefore, consider the following stocks as our model shows that they have the right combination of elements to post an earnings beat this quarter:

InvenSense Inc. , Earnings ESP of +8.33% and a Zacks Rank #2 (Buy).

Huron Consulting Group Inc. , Earnings ESP of +1.64% and a  Zacks Rank #2 (Buy).

Gartner Inc. , Earnings ESP of +1.96% and a Zacks Rank #2 (Buy).

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