Fourth-quarter 2018 earnings season for the technology sector is expected to be a weaker one compared with the preceding two quarters. Per the latest Earnings Preview, technology sector earnings are estimated to grow 3.8% on revenue growth of 4.7%, both down significantly from third-quarter growth rates of 27.3% and 12.7%, respectively.
The weakness can be primarily attributed to Apple’s (AAPL - Free Report) guidance cut on Jan 2. The company blamed weak iPhone demand in Greater China and fewer upgrades to its flagship device. Moreover, imposition of tariff due to trade war between the United States and China is expected to negatively impact semiconductors and electronics segments of the broader technology sector.
Further, sluggishness in China’s economy, weak automotive growth and inventory corrections are expected to hurt growth.
Nevertheless, electronics is expected to benefit from growing proliferation of electronic devices in every major sector, namely consumer, automobile, industrial, aerospace & defense, and communications. Additionally, strong demand for testing solutions in satellites, radar and surveillance system is a key catalyst.
Let’s take a sneak peek into three electronics companies that are set to report quarterly earnings on Jan 23:
Wallingford, CT-based Amphenol Corporation (APH - Free Report) is likely to benefit from strong organic growth across most of its end markets. Additionally, strong defense spending environment, which is having a positive impact on the military end market, is expected to boost top-line growth of this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
However, Amphenol is unlikely to deliver a positive earnings surprise, as according to the Zacks model, only a company with a Zacks Rank #1, 2 (Buy) or 3 (Hold) has a good chance of beating estimates, if it also has a positive Earnings ESP. Meanwhile, Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
The Zacks Consensus Estimate for earnings has been steady at 98 cents over the past seven days. (Read more: Amphenol to Report Q4 Earnings: What's in the Cards?)
Meanwhile, Teradyne’s (TER - Free Report) fourth-quarter 2018 results are expected to benefit from its growing memory market exposure and strong product lineup. Also, the company’s lean cost structure and strong balance sheet are positives.
However, the North Reading, MA-based company has an unfavorable combination of a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The consensus mark for fourth-quarter earnings has been steady at 50 cents over the past seven days.
Switzerland-based TE Connectivity’s (TEL - Free Report) strong efforts toward business development are likely to boost its segmental performance. Moreover, aggressive share buyback is expected to fuel the bottom line.
However, first-quarter fiscal 2019 results are expected to be hurt by intensifying competition in the electronic components market, and sluggish auto production in Europe and China.
Moreover, TE Connectivity has a Zacks Rank #4.
Notably, the Zacks Consensus Estimate for first-quarter earnings has been steady at $1.28 over the past seven days. (Read more: TE Connectivity Q1 Earnings: What's in the Cards?)
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