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Will Microsemi (MSCC) Disappoint This Earnings Season?

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Microsemi Corporation (MSCC - Free Report) is set to report third-quarter fiscal 2014 results on Jul 24. Last quarter, it posted a 4.9% negative surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Microsemi posted mixed second quarter results with the top line surpassing the Zacks Consensus Estimate while the bottom line missed the same. The sequential increase of 12.3% in revenues was attributable to strong performance across all its end markets. Book-to-bill ratio was greater than 1, driven by orders for longer lead time products.

Moreover, favorable product mix and strong industry fundamentals are expected to benefit the Aerospace end market. Additionally, the ramp up of more electronic aircraft such as Boeing 787, Airbus A350 and A380 will lead to significant content growth.

In addition, ramp up of new chip scale atomic clocks, which help in energy exploration applications and other new programs, will help its industrial market generate stronger revenues in the near term.

However Microsemi’s second-quarter earnings missed the Zacks Consensus Estimate due to higher-than-expected operating expenses.

For the third quarter, Microsemi expects revenues to be in the range of $287–$293 million, up 1.0% sequentially at the mid-point. Non-GAAP gross margins are expected to increase in the range of 20–100 bps and earnings per share are expected to be within 55–61 cents.

Earnings Whispers?

Our proven model does not conclusively show that Microsemi will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The Most Accurate estimate stands at 46 cents while the Zacks Consensus Estimate is higher at 47 cents. That is a difference of –2.13%.

Zacks Rank: Microsemi’s Zacks Rank #3 (Hold) when combined with a negative 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

Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

  • Charter Communications, Inc. (CHTR - Free Report) , with Earnings ESP of +387.50% and a Zacks Rank #1 (Strong Buy)
  • First Solar, Inc. (FSLR - Free Report) has an Earnings ESP of +6.06% and a Zacks Rank #1
  • Silicon Motion Technology Corp. (SIMO - Free Report) , with Earnings ESP of +33.33% and a Zacks Rank #1

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