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Analyst Blog

Microchip Technology Inc. (MCHP - Free Report) is set to release second-quarter fiscal 2017 earnings on Nov 7. In the last quarter, the company reported a negative earnings surprise of 1.47%. We note that the company delivered positive earnings surprises in three of the last four quarters, with an average positive earnings surprise of 5.32%.

Let’s see how things are shaping up for this announcement.

Factors to Consider                                              

Microchip delivered unimpressive results in first-quarter fiscal 2017 wherein both earnings and revenues missed the Zacks Consensus Estimate. Though the company registered top-line growth on a year-over-year basis, the bottom line was flat.

During the last quarter, the company released the industry’s first end-to-end security solution for Internet of Things (IoT) devices that are compatible with Amazon.com, Inc.’s (AMZN - Free Report) Amazon Web Services. With the IoT market projected to grow to 1.7 trillion by 2020 (as per a report by IDC), such developments could have a positive impact on the company’s results in the to-be reported quarter.

The company also rolled out its MOST50 networking devices for infotainment appliances and introduced a new development board specifically meant for carrying out designing tasks on both 16-bit and 32-bit microcontrollers.

While these developments augur well for the company, an uncertain macroeconomic environment, foreign currency risk, and competition can adversely affect its earnings in the second quarter. 

Earnings Whispers?

Our proven model does not conclusively show that Microchip is likely to beat earnings 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. That is not the case here, as you will see below.

Zacks ESP: Microchip’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 55 cents per share. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Microchip carries a Zacks Rank #3, which when combined with a 0.00% ESP makes surprise prediction difficult.

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

MICROCHIP TECH Price and EPS Surprise

MICROCHIP TECH Price and EPS Surprise | MICROCHIP TECH Quote

Stocks to Consider

Here are some companies that, as per our model, have the right combination of elements to post an earnings beat this quarter:

SITO Mobile, Ltd. (SITO - Free Report) with an Earnings ESP of +100.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology Inc. (VSH - Free Report) with an Earnings ESP of +4.00% and a Zacks Rank #1.

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