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Analyst Blog

Applied Materials, Inc. (AMAT - Analyst Report) is set to report third quarter 2013 results on Aug 15. Last quarter, it posted a 23% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

The company’s second-quarter earnings were above the Zacks Consensus Estimate by 4 cents driven by higher volumes and effective cost control measures. Revenues jumped approximately 25% sequentially due to increased demand in the SSG and Display segments.

The second quarter was strong for Applied in terms of margin growth. This was mainly attributable to higher volumes and lower inventory charges.

Earnings Whispers?

Our proven model does not conclusively show that Applied Materials will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 19 cents. Hence, the difference is 0.00%.

Zacks Rank #3 (Hold): Applied’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

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

You could consider other stocks with a positive earnings ESP and Zacks Rank #1, #2 or #3 such as:

Rambus Inc (RMBS - Snapshot Report), with an ESP of +42.86% and a Zacks Rank #1 (Strong Buy)

Micron Tech (MU - Analyst Report), with Earnings ESP of +28.57% and a Zacks Rank #2 (Buy)

InvenSense Inc. (INVN - Snapshot Report), Earnings ESP of +5.26% and a Zacks Rank #3(Hold)