Will PMC-Sierra's (PMCS) Earnings Surprise this Season? - Analyst Blog
PMC-Sierra Inc. (PMCS) is set to report fourth-quarter 2014 results on Jan 29. Last quarter, the company posted 28.6% positive earnings surprise. Let’s see how things are shaping up for this announcement.
Factors at Play
PMC-Sierra’s third-quarter earnings of 9 cents exceeded the Zacks Consensus Estimate by a couple of cents backed by higher revenues and solid expense control. Also, revenues were up sequentially and beat the Zacks Consensus Estimate of $134.0 million, driven by strong demand for its storage products, partially offset by weak demand for optical and mobile products.
Despite the weakness in the carrier and mobile segments, improvement in storage division, introduction of several major products and design wins should help results in the fourth quarter.
However, margins of 70.2% were down 80 basis points (bps) sequentially and 110 bps from the year-ago quarter due to an unfavorable product mix.
For the fourth quarter, management expects revenues in the range of $132–$139 million, flat sequentially at the mid-point. Non-GAAP gross margin is expected within 70–71%. Operating expenses are likely to range within $71.5–$73.5 million and earnings per share is expected to be 11 cents.
PMC-Sierra is well positioned to grow and gain market share in server/storage, wireless infrastructure and optical communications. We expect LTE build-out in China, cloud and data center build-outs and storage demand to increase substantially and act as growth catalysts through 2015.
Earnings Whispers
Our proven model does not conclusively show that PMC-Sierra 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 9 cents. Hence, PMC-Sierra's earnings ESP is 0.00%.
Zacks Rank: PMC-Sierra’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:
The Allstate Corporation (ALL), with an Earnings ESP of +1.81% and a Zacks Rank #1 (Strong Buy).
Spirit AeroSystems Holdings, Inc. (SPR), with an Earnings ESP of +7.79% and a Zacks Rank #1.
Allegiant Travel Company (ALGT), with an Earnings ESP of +20.57% and a Zacks Rank #1.
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PMC-SIERRA INC (PMCS): Free Stock Analysis Report
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