Can NVIDIA Corp. (NVDA) Surprise This Earnings Season?


NVIDIA Corporation (NVDA) is set to report second-quarter 2015 results on Aug 7, 2014. Last quarter, the company posted a positive earnings surprise of 47.1%. Moreover, it is worth noting that NVIDIA has outperformed the Zacks Consensus Estimate in all the four preceding quarters with an average positive surprise of 38.2%.

Let us see how things are shaping up for this announcement.

Growth Factors This Past Quarter

The strength in gaming and high-end notebook GPUs helped NVIDIA to report better-than-expected first quarter results. Moreover, both the top and bottom lines increased on a year-over- year basis, primarily due to lower operating expenses as a percentage of revenues and higher growth in GeForce, GTX, desktop and notebook GPU sales.

Recently, Google selected NVIDIA’s Tegra K1 processor to power its Project Tango tablet development kit, which will help developers build applications featuring 3-D mapping and sensing capabilities. Moreover, Xiaomi, a Chinese mobile manufacturer launched its tablet powered by TegraK1 processors.

We believe that NVIDIA’s innovative product pipeline that consists of the recently introduced SHIELD 2 and mobile processor Tegra K1 will boost top-line growth, going forward. Moreover, the company’s recent strategic alliances bode well over the long term and we believe that NVIDIA will gain significantly from these.

Nonetheless, the continuous decline in PC sales is a cause of concern for NVIDIA’s GPU segment. Competition from the likes of Intel and QUALCOMM Inc. also remains a near term headwind.

Earnings Whispers?

Our proven model does not conclusively show that NVIDIA will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 19 cents. Hence, the difference is 0.00%.

Zacks Rank: NVIDIA carries a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.

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

Other Stocks to Consider

Here are some other companies, which you may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

  • Cognizant Technology Solutions Corp. (CTSH) has an Earnings ESP of +5.09% and sports a Zacks Rank #1 (Strong Buy)
  • Cognex Corp. (CGNX) has an Earnings ESP of +12.00% and a Zacks Rank #1
  • Semiconductor Manufacturing International Corp. (SMI) has an Earnings ESP of +33.33% and a Zacks Rank #2 (Buy)
Read the Full Research Report on NVDA
Read the Full Research Report on CTSH
Read the Full Research Report on CGNX
Read the Full Research Report on SMI

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