We expect semiconductor company Linear Technology (LLTC) to beat expectations when it reports fourth quarter 2013 results on Jul 23.
Why a Likely Positive Surprise?
Our proven model shows that Linear is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP:Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +4.76%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold):Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Linear’s Zacks Rank #3 (Hold) and +4.76% ESP makes us very confident in looking for a positive earnings beat on Jul 23.
What is Driving the Better-Than-Expected Earnings?
Linear’s business is well-diversified among core markets, such as industrial, automotive and communications infrastructure. Last quarter, the company witnessed decent improvements in revenue and order growth, supported by the high-end products (automotive and industrial).
The improved product mix (more high-margin business) led Linear to post solid earnings beat in the third quarter of 2013.
But the company needs to be cautious about slowing PC sales, which affected Linear’s Computing business, last quarter.
However, we believe that an expected turnaround in the semiconductor market could provide adequate support to the company’s fundamentals in the coming quarter.
Linear has surpassed estimates in the past four trailing quarters, which resulted in an average positive surprise of 2.48%. We believe that Linear has enough potential to beat earnings in the upcoming quarter.
Other Stocks to Consider
Apart from Linear, we also expect earnings beat from the following stocks.
InvenSense Inc. (INVN), Earnings ESP of +8.33% and Zacks Rank #2 (Buy).
Huron Consulting Group Inc. (HURN), Earnings ESP of +1.64% and Zacks Rank #2 (Buy).
Gartner Inc. (IT), Earnings ESP of +1.96% and Zacks Rank #2 (Buy).
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