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Mellanox (MLNX) to Report Q1 Earnings: What's in the Offing?

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Mellanox Technologies, Ltd. (MLNX - Free Report) is set to report first-quarter 2019 results on Apr 16.

Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters, delivering average positive surprise of 13.3%.

In the last reported quarter, the company delivered fourth-quarter 2018 non-GAAP earnings of $1.42 per share, beating the Zacks Consensus Estimate of $1.31. The figure soared 73.2% year over year.

The company reported revenues of $290.1 million, up 22.1% from the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of $285 million.

Innovations in Ethernet adapters, switches and LinkX cables bolstered demand, which in turn drove the top line. Further, robust demand for InfiniBand product was a key positive.

Guidance & Estimates

Mellanox expects first-quarter 2019 revenues in the range of $295 million to $305 million. The company is well positioned to reap the benefits of the release of BlueField system chips and introduction of 200 gigabit per second InfiniBand and Ethernet products.

The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $300.6 million, up roughly 19.7% from the year-ago quarter. Further, the consensus mark for earnings is pegged at $1.45 per share, reflecting year-over-year surge of 47.9%.

Notably, Mellanox stock has returned 53.1% year over year, substantially outperforming the industry’s rally of 19.1%.

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

Factors to Consider

The company’s HDR 200 gigabit InfiniBand enhances competitive advantage in the AI market.

InfiniBand surged 33% year over year during the fourth quarter due higher demand for HDR 200. Moreover, growing clout of InfiniBand solution is expected to aid Mellanox in strengthening its leadership position in the high-performance interconnects space.

Mellanox is benefiting from solid demand of its Gigabit EDR solutions in machine learning, artificial intelligence, high-performance computing, database and storage. The company recently announced the launch of a storage virtualization solution, NVMe SNAP (Software-defined, Network Accelerated Processing).

Further, the company announced that JD.com, a Chinese e-commerce company, is leveraging its ConnectX Ethernet network adapters.

The company is one of the major suppliers of 25, 50, and 100GB Ethernet adapters, switches, and cables to the market today. In fact, per Crehan research estimates, Mellanox has a market share of 69% in the high-speed Ethernet adapter business, leaving Intel, Broadcom, Cisco and other peers trailing.

In fact, the company’s Ethernet adapters have been also deployed in production network of Alibaba's Infrastructure Services.

In the fourth quarter of 2018, the company’s Ethernet business grew 21% year over year on account of robust adoption of its high-speed Ethernet network adapters and LinkX transceivers and cables.

The need to access and process data at a faster speed due to data growth is fueling increased demand for high-speed Ethernet adapters.

Additionally, the company's ongoing collaborations with the likes of Microsoft, VMware, Hewlett Packard Enterprise and Microsemi Corporation are enabling it to expand footprint in the cloud and datacenter as well as high performance computing market.

However, exposure to foreign currency amid an uncertain macroeconomic environment remains a headwind.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Mellanoxhas 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.

Stocks with Favorable Combination

Here are a few stocks that are worth considering as our model shows that these have the right combination of elements to deliver an earnings beat in the upcoming releases.

The Progressive Corporation (PGR - Free Report) has an Earnings ESP of +0.09% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.

RLI Corp. (RLI - Free Report) has an Earnings ESP of +2.56% and a Zacks Rank #2.

Netflix, Inc. (NFLX - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #3.

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