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2 Buy-Ranked Stocks with Positive Earnings Surprises & Rising Estimates

Sejuti Banerjea
·5 mins read

Investing in buy-ranked stocks that are seeing upward estimate revisions is a no-brainer. Here’s a quick dive into a couple you may want to add to your portfolio-

Koninklijke Philips N.V. PHG

Headquartered in Amsterdam, The Netherlands, Koninklijke Philips N.V. is the parent company of the Philips Group. It is a health technology company operating through Personal Health, Diagnosis & Treatment, and Connected Care segments.

Through these segments, it offers imaging, x-ray (for diagnostics and therapy), proprietary software facilitating diagnostics and intervention, monitoring and analytics, sleep and respiratory solutions, etc; digital frameworks connecting consumers, patients, healthcare providers, payers, and partners in a cloud-based connected health ecosystem.

It’s in the process of divesting the domestic appliances business, which includes products like power toothbrushes, infant feeding and digital parental solutions, products for male grooming, beauty, kitchen appliances, home care, garment care products as well as coffee which is being divested.

Headline numbers: The company reported revenue of $4.84 billion and earnings of 39 cents. Although down from last year, they were up a respective 5.4% and 95% on a sequential basis.

Highlights of the quarter: This is primarily a COVID story, as the areas of the business supporting the pandemic saw extremely high growth while some others languished. Management remarked that “the second quarter has seen the largest adverse impact on revenue and margins from the effects of the COVID-19 pandemic” while maintaining expectations of “continued increasing market share in the professional healthcare market.”

In terms of revenue, this translated into a 19% decline in Personal Health and a 9% decline in Diagnosis & Treatment, as offset by a 14% increase in Connected Care.

Equipment orders jumped 27%, the second straight quarter of strength, driven by patient monitors, hospital ventilators, computed tomography, and portable ultrasound systems. Sleep and respiratory care sales grew double-digits and monitoring and analytics grew mid-single-digits. However, installation for elective procedures in hospitals dropped 6% (volumes recovered to 10% below pre-COVID-19 levels in recent weeks compared to 50%+ decline coming into the current quarter).

There were 14 new large scale strategic partnerships, such as a 10-year agreement with the U.S. Department of Veterans Affairs, expanding their tele-critical care program. The VA expects to manage 1,800 ICU beds across the nation, creating the world's largest system providing virtual access to intensive care expertise.

Operations were fully functional. Sales and field service engineers delivered on critical equipment installations and maintenance services whether physically or remotely.

While there was a hit to profitability due to product mix and lower utilization, it was partially offset by cost mitigation efforts that remain on track. Therefore, with elective procedures normalizing in the second half, consumer demand also picking up and order fulfilment on the Diagnosis and Treatment side, management expects to maintain growth and improve on profitability targets for the year.

Other details:

Zacks Rank #1 (Buy)

VGM Score A

Industry: Electronics - Miscellaneous Products (top 35%)

2020 estimate up 11 cents in the last 7 days

2021 estimate up 16 cents in the last 7 days

Cadence Design Systems, Inc. CDNS

Based in San Jose, CA, Cadence Design Systems offers products and tools that help customers design integrated circuits (ICs), IC packages and printed circuit boards (PCBs). As IC making is a complicated process and the cost of an incorrectly developed design very high, precision tools are imperative to generate effective results.

Cadence offers the whole gamut of tools spanning software, hardware and services for schematic and physical representations of ICs, including tools for simulation and analysis of the logic, verification of each step, finalization of the design and identifying manufacturing and yield issues as early in the development process as possible. It also offers pre-verified, customizable functional blocks called IPs that can be used in the design process to speed up development and minimize errors.

Headline numbers: Cadence reported earnings of 66 cents that topped the Zacks Consensus Estimate of 52 cents by 26.9%. Revenue of $638 million was 7.8% higher than the estimated $592 million.

Highlights of the quarter: The results were driven by strength across product lines, as longer-term demand trends in things like 5G, artificial intelligence and hyperscale computing remained on track.

Programs at customers like Renesas and Micron MU were expanded and new accounts were also won. Collaboration with Taiwan Semiconductor TSM and Microsoft MSFT for Cadence signoff solutions in TSM technology on Azure was also called out.

As has been the common theme for many players of late, the employee base continues to work from home. Management said that things were effectively handled on the operational side as regards R&D and customer deliverables. Moreover, investment in infrastructure and collaboration platforms continues, supporting the sales and application engineering teams.

The very strong demand allowed management to raise guidance for the year, even after providing for weaker collections expected at some smaller customers.

Other details:

Zacks Rank #2 (Buy)

VGM Score B

Industry: Computer – Software (top 43%)

2020 estimate up 2 cents in the last 7 days

 

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Koninklijke Philips N.V. (PHG) : Free Stock Analysis Report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
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Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
 
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