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3 Stocks That Know How to Beat Earnings

James Giaquinto

We can't get enough of earnings season here at Zacks! It's like having Christmas four times a year. There are both pleasant surprises and huge disappointments as companies release their results to investors. And it also refreshes the data of our Zacks Rank. This earnings season isn't expected to be as impressive as the last two, but the market seems optimistic that it will be solid enough to justify the market's valuations. Sheraz Mian offered an in-depth look at this earnings season in his recent Earnings Trends article.

But earnings season is unpredictable both in the numbers that are reported and in the market's reaction to them. Its not just about finding companies that beat expectations. You need to find stocks that will advance AFTER a strong report. One of the best places to look for these earnings superstars is Zacks' EPS Growth, Revisions &Positive Surprises screen. As the name implies, this screen seeks out Zacks Rank #1s (Strong Buys) with positive surprises and upward earnings estimates. These stocks are the best positioned to outperform in the near and longer terms.

Below are two stocks that look set for solid reports and one that has already done so. But remember, there are dozens of names that passed this screen's criteria. So after reading these profiles, make sure to go to Zacks Premium to look up the other names and the parameters. If you're not a ZP member, earnings season is a great time to sign up.

Applied Materials (AMAT)

There was once a time when this semiconductor equipment supplier was primarily driven by PC demand…but no longer. You don’t get to be a leader in your field with a nearly $60 billion market cap by focusing on just one area. And if the company is right, then it’s growth potential is just beginning.

As recently stated at its “2017 Analyst Day”, Applied Materials (AMAT) is entering into “a new era of computing”, and it plans to use materials innovation to spark new breakthroughs in areas like the Internet of Things, big data and even artificial intelligence.

In fact, AMAT expects non-GAAP earnings per share of $5.08 for fiscal 2020, which would mark an amazing improvement from $1.75 last year.

But the foundation for this proposed future growth is being laid right now, such as in its fiscal third quarter report. AMAT reported earnings per share of 86 cents, which beat the Zacks Consensus Estimate for the 16th straight quarter. Net sales climbed 33% year over year to $3.74 billion.

Looking toward the fiscal fourth quarter (which will be reported on Nov 16), AMAT sees net sales between $3.85 billion and $4 billion, averaging to a 19% improvement from the previous year. Non-GAAP earnings per share are expected to jump approximately 36% to between 86 cents and 94 cents.

This fiscal year ends this month, and AMAT currently has a Zacks Consensus Estimate of $3.23 per share. The result has improved by 3.5% over the past 2 months. Going forward, earnings are expected to grow nearly 14% to $3.68 for next fiscal year (ending October 2018). The Zacks Consensus Estimate for this period has gained 10.8% in the past 60 days.


Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. Price, Consensus and EPS Surprise | Applied Materials, Inc. Quote


Kemet Corp. (KEM)

Kemet Corp. (KEM) is what investors dream about. Shares of this passive electronic components supplier have soared nearly 300% so far this year, and it recently pushed its way into the S&P SmallCap 600 index. KEM is a player in two of the fastest-growing sectors of the U.S. capacitor industry: solid tantalum capacitors and multilayer ceramic capacitors. As a member of the Electronics – Miscellaneous Components industry, the company is part of a space in the top 28% of the Zacks Industry Rank...but it’s blowing the doors off that industry’s comparatively meager 36.6% advance YTD. But can this momentum continue?

If earnings estimates are any indication (and we know they are), then KEM should have plenty of running room in the future. It may have soared triple-digits this year, but its still only at about $24 and has a positive Earnings ESP for the report coming on Nov 2. The Zacks Consensus Estimate for this fiscal year (ending March 2018) hasn’t moved very dramatically in the past 2 months, but has soared 63.9% from 3 months ago.

Next fiscal year ends in March 2019, so its still a far way off. Yet, earnings estimates are already expected to grow 5.7% to $1.68 per share, which has advanced 43.4% in 3 months.

Much of the spike in shares and earnings estimates can be traced back to the April acquisition of NEC TOKIN Corp.

In its fiscal first quarter report, KEM announced its fifth straight positive surprise. Earnings per share of 33 cents surged past the Zacks Consensus Estimate by 65%. The average surprise over the past four quarters is also 65%. Net sales of $274 million were up $76.5 million year over.


Kemet Corporation Price, Consensus and EPS Surprise

Kemet Corporation Price, Consensus and EPS Surprise | Kemet Corporation Quote


Vishay Intertechnology, Inc. (VSH)

We were feeling pretty good about Vishay Intertechnology's (VSH) third quarter report on October 26, given that this leading manufacturer of discrete semiconductors and passive components had beaten estimates in five of the previous six quarters. And the company didn't disappoint.

Adjusted earnings per share of 42 cents jumped past the Zacks Consensus Estimate by 10.5% and trounced last year's 25 cents. Even with a rare miss in the fourth quarter and a match in last year’s third quarter, VSH still has a positive earnings surprise of nearly 6% in the past four quarters. Looking forward, the company says it is well-positioned to capitalize on expected strong growth in automotive markets for years to come.

VSH is a leading manufacturer of discrete semiconductors and passive components, which puts it in a space (Semiconductor – Discretes) that’s in the top 3% of the Zacks Industry Rank. It’s got the seventh spot out of 256 industries with a year-to-date advance of almost 30%. (FYI, “discretes” are semiconductors that perform rudimentary electronic functions.)

The company provides one of the most comprehensive electronic component lines in the world, which has been a big help at earnings time. It enjoyed continued strong demand from virtually all its markets in the third quarter, helping revenues reach $678 million from last year’s $592 million. The industrial and automotive markets were especially solid. Revenues are expected between $645 million and $685 million in the fourth quarter.

Earnings estimates have only moved higher a few pennies since the report, but that's likely to change moving forward for this underfollowed stock. The last report prompted a sharp rise in expectations that can still be seen. The Zacks Consensus Estimate for this year has jumped 13.1% in the past three months to $1.38. Earnings are expected to gain a further 6.5% next year to $1.47, which is up nearly 15% in 90 days.


Vishay Intertechnology, Inc. Price, Consensus and EPS Surprise

Vishay Intertechnology, Inc. Price, Consensus and EPS Surprise | Vishay Intertechnology, Inc. Quote


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