Applied Materials, Inc. (AMAT) is set to report first-quarter 2014 results on Feb 12. Last quarter, it posted a 5.6% positive surprise. Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
The company’s fourth-quarter earnings exceeded the Zacks Consensus Estimate by a penny. Revenues of $1.99 billion were flat sequentially but up 20.8% year over year, benefiting from the proliferation of mobile devices, partially offset by slowing sales in China.
The fourth quarter was weak for Applied Materials in terms of margin growth. This was mainly impacted by a $20 million charge for a customs duty assessment in the Applied Global Services segment as well as a $10 million inventory charge in the Display business.
For the first quarter, Applied Materials expects revenues to be up 3%–10% with Silicon Systems Group increasing 15%–20%, but Applied Global Services and Display down a respective 5%–10% and 15%–30%, and Energy and Environmental Solutions remaining roughly flat. Earnings per share (excluding 4 cents of acquisition-related charges) are expected to come in at 20 cents–24 cents, the mid-point in line with the Zacks Consensus Estimate of 22 cents.
Our proven model does not conclusively show that Applied Materialswill 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 22 cents. Hence, the difference is 0.00%.
Zacks Rank: Applied has 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
You could consider other stocks with a positive earnings ESP and a Zacks Rank #1, 2 or 3 such as:
Melco Crown Entertainment Limited (MPEL), with Earnings ESP of +7.50% and a Zacks Rank #1 (Strong Buy).
Ship Finance International Limited (SFL), with Earnings ESP of +52.63% and a Zacks Rank #1.
Salix Pharmaceuticals Ltd. (SLXP), with Earnings ESP of +18.75% and a Zacks Rank #1.