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TE Connectivity (TEL) Q3 Earnings: What's in the Cards?
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TE Connectivity Ltd. (TEL - Free Report) is set to report third-quarter fiscal 2016 earnings results, before the opening bell on Jul 20.
Last quarter, the company posted a positive earnings surprise of 1.1%. The company has a decent surprise history over the trailing four quarters, having beaten estimates thrice with an average positive surprise of 2.7%.
Let's see how things are shaping up for this announcement.
Factors to Consider
TE Connectivity’s third-quarter fiscal 2016 will likely be hit by a host of unfavorable macroeconomic factors. Prolonged softness at the Industrial Solutions segment on account of sluggish oil and gas markets, and constrained growth in commercial transportation market are expected to act as headwinds for the soon-to-be reported quarter. The company also expects to book much higher restructuring charges connected to data and devices product exits, elimination of corporate stranded costs from BNS divestiture and general cost reductions in fiscal 2016. These charges will push up costs and hurt margins in the near term.
Weak oil & gas markets have significantly weighed on TE Connectivity’s financials in the recent quarters. Moreover, due to the spillover effect, industrial equipment businesses as well as markets like factory equipment and rail have been negatively impacted. These apart, factors including unfavorable foreign currency translations and slowdown in the Chinese economy are expected to add to TE Connectivity’s woes.
Despite these negatives, TE Connectivity’s comprehensive portfolio, which adds to its resiliency in times of economic distress and cyclical risks, is expected to combat some of the weakness. The company has been benefiting from strong performance of SubCom (part of its communication business), driven by strong execution of multiple projects. The momentum of this segment will likely boost the company’s top line.
The company’s dominant position in connectivity and sensor business and growing presence in the high-growth, minimally invasive medical markets are also expected to supplement growth during the quarter to-be reported.
In addition, the company’s diligent acquisition strategy has been strongly supplementing non-core revenue growth. In fact, during the quarter, TE Connectivity concluded the buyout of healthcare device company Creganna Medical Group, in a bid to cement its position as the industry leader in high-growth harsh environment applications.Creganna will also likely unlock growth opportunities in the transportation and industrial segments.
The acquisition will allow TE Connectivity to double its medical business revenues to approximately $500 million, thus boosting top line growth and driving profitability in the quarter under review.
Finally, the company’s diligent capital deployment strategies to return approximately two-thirds of its free cash flow to shareholders and continuous double-rate dividend increase reflect financial flexibility, thereby adding to its financial strength.
Our proven model does not conclusively show that TE Connectivity will beat earnings estimate in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP for the company currently stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate is $1.04.
Zacks Rank: Although TE Connectivity's Zacks Rank #3 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for Moody's Corporation (MCO - Free Report) is +8.87% and it carries a Zacks Rank #3. The company is expected to release its quarterly results on Jul 22.
HNI Corp. (HNI - Free Report) has an Earnings ESP of +8.20% and a Zacks Rank #1. The company will report results on Jul 21.
Gilead Sciences Inc. (GILD - Free Report) has an Earnings ESP of +6.91% and a Zacks Rank #2. The company is expected to release earnings results on Jul 25.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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TE Connectivity (TEL) Q3 Earnings: What's in the Cards?
TE Connectivity Ltd. (TEL - Free Report) is set to report third-quarter fiscal 2016 earnings results, before the opening bell on Jul 20.
Last quarter, the company posted a positive earnings surprise of 1.1%. The company has a decent surprise history over the trailing four quarters, having beaten estimates thrice with an average positive surprise of 2.7%.
Let's see how things are shaping up for this announcement.
Factors to Consider
TE Connectivity’s third-quarter fiscal 2016 will likely be hit by a host of unfavorable macroeconomic factors. Prolonged softness at the Industrial Solutions segment on account of sluggish oil and gas markets, and constrained growth in commercial transportation market are expected to act as headwinds for the soon-to-be reported quarter. The company also expects to book much higher restructuring charges connected to data and devices product exits, elimination of corporate stranded costs from BNS divestiture and general cost reductions in fiscal 2016. These charges will push up costs and hurt margins in the near term.
Weak oil & gas markets have significantly weighed on TE Connectivity’s financials in the recent quarters. Moreover, due to the spillover effect, industrial equipment businesses as well as markets like factory equipment and rail have been negatively impacted. These apart, factors including unfavorable foreign currency translations and slowdown in the Chinese economy are expected to add to TE Connectivity’s woes.
Despite these negatives, TE Connectivity’s comprehensive portfolio, which adds to its resiliency in times of economic distress and cyclical risks, is expected to combat some of the weakness. The company has been benefiting from strong performance of SubCom (part of its communication business), driven by strong execution of multiple projects. The momentum of this segment will likely boost the company’s top line.
The company’s dominant position in connectivity and sensor business and growing presence in the high-growth, minimally invasive medical markets are also expected to supplement growth during the quarter to-be reported.
In addition, the company’s diligent acquisition strategy has been strongly supplementing non-core revenue growth. In fact, during the quarter, TE Connectivity concluded the buyout of healthcare device company Creganna Medical Group, in a bid to cement its position as the industry leader in high-growth harsh environment applications.Creganna will also likely unlock growth opportunities in the transportation and industrial segments.
The acquisition will allow TE Connectivity to double its medical business revenues to approximately $500 million, thus boosting top line growth and driving profitability in the quarter under review.
Finally, the company’s diligent capital deployment strategies to return approximately two-thirds of its free cash flow to shareholders and continuous double-rate dividend increase reflect financial flexibility, thereby adding to its financial strength.
TE CONNECT-LTD Price and EPS Surprise
TE CONNECT-LTD Price and EPS Surprise | TE CONNECT-LTD Quote
Earnings Whispers
Our proven model does not conclusively show that TE Connectivity will beat earnings estimate in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP for the company currently stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate is $1.04.
Zacks Rank: Although TE Connectivity's Zacks Rank #3 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for Moody's Corporation (MCO - Free Report) is +8.87% and it carries a Zacks Rank #3. The company is expected to release its quarterly results on Jul 22.
HNI Corp. (HNI - Free Report) has an Earnings ESP of +8.20% and a Zacks Rank #1. The company will report results on Jul 21.
Gilead Sciences Inc. (GILD - Free Report) has an Earnings ESP of +6.91% and a Zacks Rank #2. The company is expected to release earnings results on Jul 25.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>