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Chipmakers on a Roll This Earnings Season: 3 Solid Buys
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At the start of this earnings season, chipmakers have been in quite a fix mainly due to the U.S.-China trade issues. But not just the trade war, semiconductor stocks were facing a weaker pricing environment for memory chips and lesser-than-expected growth in applications such as PCs, servers and smartphones. This compelled many agencies, including International Data Corp and IHS Markit, to lower chip sales projections for this year.
But, chipmakers defied all odds and came out with encouraging earnings results. Prominent among them are Nvidia and Applied Materials. Nvidia’s fiscal second-quarter earnings and sales topped analysts’ expectations. What’s more, Nvidia’s gaming revenues also surpassed Wall Street estimates.
Nvidia founder and CEO Jensen Huang recently said that “we achieved sequential growth across our platforms.” Huang added that “NVIDIA accelerated computing momentum continues to build as the industry races to enable the next frontier in artificial intelligence, conversational AI, as well as autonomous systems like self-driving vehicles and delivery robots.”
Rival player Applied Materials also registered a beat on the top and bottom lines in its recent quarter. President and CEO Gary Dickerson said in a statement that “we are excited about the company’s future opportunities and are fully funding our R&D programs to develop new products and capabilities that will accelerate customers’ roadmaps and underpin our growth in the years ahead.”
In fact, Teradyne and Texas Instruments were two of the best performers in recent times that topped Wall Street forecasts and issued better-than-expected outlooks for the full year. Teradyne earned 66 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure climbed 11.9% on a year-over-year basis.
Revenues of $564 million surpassed the Zacks Consensus Estimate of $538 million and were higher than the guided range of $520-$550 million. Nearly 67% of revenues came from semiconductor testing platforms, 13% from Industrial Automation, 13% from the System Test business and the remaining 7% from the Wireless Test business.
The company, in the meantime, has issued a stronger-than-expected outlook. Management expects third-quarter revenues and earnings per share in the band of $540-$580 million and 64-74 cents, while the Zacks Consensus Estimate for third-quarter revenues and earnings per share are pegged at $547.9 million and 63 cents, respectively.
Nonetheless, such a strong performance is attributable to continued growth in memory test spending, networking, infrastructure and 5G.
And when it comes to Texas Instruments, the company earned $1.36 per share in the second quarter, topping the Zacks Consensus Estimate of $1.21 and surpassing management’s guided range of $1.12-$1.32. In fact, Texas Instruments now expects third-quarter earnings per share of $1.31 to $1.53, while market pundits had estimated $1.38 a share.
Revenues of $3.668 billion also outpaced the Zacks Consensus Estimate of $3.605 billion, while the figure was within the company’s guided range of $3.46-$3.74 billion. The company, by the way, expects revenues between $3.65 billion and $3.95 billion in the third quarter.
Texas Instruments’ revenue results in particular are commendable. After all, blacklisted Chinese telecom giant Huawei, a big customer of U.S. chipmakers, accounts for 3% to 4% of Texas Instruments’ overall revenues.
And how can we forget chip bellwether Micron Technology. The stock has been on fire ever since the flash memory specialist squashed fiscal third-quarter earnings estimates last month. To top it, the firm has raised its 2019, 2020 and 2021 earnings per shares estimates. And now Goldman Sachs has upgraded Micron and raised its price target from $40 to $56. This new target is around 20% higher from current levels.
Goldman Sachs’ Mark Delaney said that “we are now more positive on global memory stocks. ... We believe that Micron’s stock will trade more on memory pricing trends and intermediate term EPS expectations than FY20 earnings.”
3 Winning Stocks
With semiconductor stocks smashing earnings estimates, it will be judicious to invest in some winning players. To top it, China’s latest plan to spur economic growth will surely boost semiconductor stocks, especially those in the region, in the near term as well. China is expecting to roll out a plan to improve disposable income this year.
We have, thus, selected three fundamentally sound semiconductor stocks that also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Power Integrations, Inc. (POWI - Free Report) designs, develops, and markets analog and mixed-signal integrated circuits (ICs), and other electronic components and circuitry used in high-voltage power conversion. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 3.8% over the past 60 days. The company’s expected earnings growth rate for the next quarter is 37% against the Semiconductors - Power projected decline of 28.6%.
NeoPhotonics Corporation develops, manufactures, and sells optoelectronic products that transmit, receive, and switch high speed digital optical signals for communications networks. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 15% over the past 60 days. The company’s expected earnings growth rate for the current quarter is 140%, compared with the Semiconductor - Communications estimated rally of 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Taiwan Semiconductor Manufacturing Company Limited (TSM - Free Report) engages in manufacturing, selling, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 2.5% over the past 60 days. The company’s expected earnings growth rate for the next year is 17.33%, compared with the Semiconductor - Circuit Foundry estimated rise of 17.3%.
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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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Chipmakers on a Roll This Earnings Season: 3 Solid Buys
At the start of this earnings season, chipmakers have been in quite a fix mainly due to the U.S.-China trade issues. But not just the trade war, semiconductor stocks were facing a weaker pricing environment for memory chips and lesser-than-expected growth in applications such as PCs, servers and smartphones. This compelled many agencies, including International Data Corp and IHS Markit, to lower chip sales projections for this year.
But, chipmakers defied all odds and came out with encouraging earnings results. Prominent among them are Nvidia and Applied Materials. Nvidia’s fiscal second-quarter earnings and sales topped analysts’ expectations. What’s more, Nvidia’s gaming revenues also surpassed Wall Street estimates.
Nvidia founder and CEO Jensen Huang recently said that “we achieved sequential growth across our platforms.” Huang added that “NVIDIA accelerated computing momentum continues to build as the industry races to enable the next frontier in artificial intelligence, conversational AI, as well as autonomous systems like self-driving vehicles and delivery robots.”
Rival player Applied Materials also registered a beat on the top and bottom lines in its recent quarter. President and CEO Gary Dickerson said in a statement that “we are excited about the company’s future opportunities and are fully funding our R&D programs to develop new products and capabilities that will accelerate customers’ roadmaps and underpin our growth in the years ahead.”
In fact, Teradyne and Texas Instruments were two of the best performers in recent times that topped Wall Street forecasts and issued better-than-expected outlooks for the full year. Teradyne earned 66 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure climbed 11.9% on a year-over-year basis.
Revenues of $564 million surpassed the Zacks Consensus Estimate of $538 million and were higher than the guided range of $520-$550 million. Nearly 67% of revenues came from semiconductor testing platforms, 13% from Industrial Automation, 13% from the System Test business and the remaining 7% from the Wireless Test business.
The company, in the meantime, has issued a stronger-than-expected outlook. Management expects third-quarter revenues and earnings per share in the band of $540-$580 million and 64-74 cents, while the Zacks Consensus Estimate for third-quarter revenues and earnings per share are pegged at $547.9 million and 63 cents, respectively.
Nonetheless, such a strong performance is attributable to continued growth in memory test spending, networking, infrastructure and 5G.
And when it comes to Texas Instruments, the company earned $1.36 per share in the second quarter, topping the Zacks Consensus Estimate of $1.21 and surpassing management’s guided range of $1.12-$1.32. In fact, Texas Instruments now expects third-quarter earnings per share of $1.31 to $1.53, while market pundits had estimated $1.38 a share.
Revenues of $3.668 billion also outpaced the Zacks Consensus Estimate of $3.605 billion, while the figure was within the company’s guided range of $3.46-$3.74 billion. The company, by the way, expects revenues between $3.65 billion and $3.95 billion in the third quarter.
Texas Instruments’ revenue results in particular are commendable. After all, blacklisted Chinese telecom giant Huawei, a big customer of U.S. chipmakers, accounts for 3% to 4% of Texas Instruments’ overall revenues.
And how can we forget chip bellwether Micron Technology. The stock has been on fire ever since the flash memory specialist squashed fiscal third-quarter earnings estimates last month. To top it, the firm has raised its 2019, 2020 and 2021 earnings per shares estimates. And now Goldman Sachs has upgraded Micron and raised its price target from $40 to $56. This new target is around 20% higher from current levels.
Goldman Sachs’ Mark Delaney said that “we are now more positive on global memory stocks. ... We believe that Micron’s stock will trade more on memory pricing trends and intermediate term EPS expectations than FY20 earnings.”
3 Winning Stocks
With semiconductor stocks smashing earnings estimates, it will be judicious to invest in some winning players. To top it, China’s latest plan to spur economic growth will surely boost semiconductor stocks, especially those in the region, in the near term as well. China is expecting to roll out a plan to improve disposable income this year.
We have, thus, selected three fundamentally sound semiconductor stocks that also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Power Integrations, Inc. (POWI - Free Report) designs, develops, and markets analog and mixed-signal integrated circuits (ICs), and other electronic components and circuitry used in high-voltage power conversion. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 3.8% over the past 60 days. The company’s expected earnings growth rate for the next quarter is 37% against the Semiconductors - Power projected decline of 28.6%.
NeoPhotonics Corporation develops, manufactures, and sells optoelectronic products that transmit, receive, and switch high speed digital optical signals for communications networks. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 15% over the past 60 days. The company’s expected earnings growth rate for the current quarter is 140%, compared with the Semiconductor - Communications estimated rally of 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Taiwan Semiconductor Manufacturing Company Limited (TSM - Free Report) engages in manufacturing, selling, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 2.5% over the past 60 days. The company’s expected earnings growth rate for the next year is 17.33%, compared with the Semiconductor - Circuit Foundry estimated rise of 17.3%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>