U.S. Markets open in 1 hr 56 mins

Will Affymetrix (AFFX) Surprise This Earnings Season?

Zacks Equity Research

We expect the Santa Clara, Calif.-based biomedical company Affymetrix Inc. (AFFX) to beat expectations when it reports 2013-fourth quarter results after the closing bell on Feb 5.

Why a Likely Positive Surprise?

Our proven model shows that Affymetrix is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings ESP (Expected Surprise Prediction), the difference between the Most Accurate Estimate of 8 cents and the Zacks Consensus Estimate of 7 cents, stands at +14.29%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #1 (Strong Buy): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The combination of AFFX’s Zacks Rank #1 (Strong Buy) and favorable ESP makes us confident of a positive earnings beat in the 2013-fourth quarter.

What is Driving the Better-than-Expected Earnings?

We believe that AFFX is ready for a turnaround and the worst days are over for the company. In the face of declining demand for Affymetrix’ flagship GeneChip Expression products, management's strategy to transform AFFX into a company with a broad reach in the high-growth markets for translational medicine, molecular diagnostics and applied markets is indeed encouraging.

Shares of Affymetrix started escalating following its promising third quarter results. The company posted adjusted earnings per share of 5 cents in the third quarter of 2013, surpassing the Zacks Consensus Estimate of 2 cents and rebounding from the year-ago adjusted loss of 3 cents.

Revenues inched up 0.9% to $80.4 million, beating the Zacks Consensus Estimate of $79 million. Product revenues improved 2.9% to $74.8 million, while Service and other revenues dropped 18.8% to $5.6 million in the reported quarter.

Gross margin increased 300 basis points (bps) to 55% from 52% in the third quarter of 2012. However, on an adjusted basis, gross margin rose 100 bps to 61%.

Other Stocks to Consider

Affymetrix is not the only bullish stock in the biomed/gene medical industry this earnings season. We also see likely earnings beats coming from the following industry peers:

Medivation, Inc. (MDVN): Earnings ESP of +14.29% and Zacks Rank #1 (Strong Buy).

Biogen Idec Inc. (BIIB): Earnings ESP of +9.01% and Zacks Rank #2 (Buy).

XOMA Corporation (XOMA): Earnings ESP of +10.00% and Zacks Rank #2 (Buy).

Read the Full Research Report on AFFX
Read the Full Research Report on MDVN
Read the Full Research Report on XOMA
Read the Full Research Report on BIIB

Zacks Investment Research