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Will Semiconductor ETFs Surprise Again in Q4 Earnings?

Sweta Killa

Thanks to robust back-to-back earnings, consolidation activities and innovative technologies, semiconductor stocks enjoyed a stellar ride last year. New areas such as autonomous cars, cloud computing, gaming, wearables, VR headsets, drones, virtual reality devices and Internet of Things (IoT) are fueling growth in the sector, offsetting struggling traditional businesses like PCs and smartphones.

In particular, iShares PHLX Semiconductor ETF SOXX, Market Vectors Semiconductor ETF SMH and PowerShares Dynamic Semiconductors Fund PSI rose 60.5%, 55.6% and 65.8%, respectively, over the past one year, beating the broad technology fund (XLK) by a wide margin. XLK gained 28.3% in the same time frame (read: 4 Market Beating Sector ETFs & Stocks of 2016).

This trend is likely to continue at least in Q4 earnings given that most of the chipmakers are poised to surprise again this quarter. Let’s delve into the earnings picture of major chipmakers like Intel INTC, Texas Instruments TXN, Qualcomm QCOM and NVIDIA NVDA that have a higher allocation to these ETFs and have the power to move the funds up or down as Q4 earnings unfold. SMH has the largest concentration in these four firms with a combined share of 32.2%, followed by 31.8% for SOXX and 20.0% for PSI.

What’s in Store?

Intel is slated to release earnings after market close on January 26. It has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The stock witnessed no earnings estimate revision for the yet-to-be-reported quarter over the past 90 days. The world’s largest chipmaker delivered positive earnings surprises in the last four quarters, with an average beat of 12.14%. The stock is a triple play with a top Value Style Score of A and solid Growth and Momentum Style Score of B each.

Texas Instruments has a Zacks Rank #3 and an Earnings ESP of +1.24%, indicating a reasonable chance of beating estimates this quarter. It delivered an average positive earnings surprise of 5.65% in the last four quarters. The Zacks Consensus Estimate for fourth-quarter 2016 moved up by a couple of cents over the past three months. It represents substantial earnings growth of 14.69% from the year-ago quarter. Further, the stock has a solid Growth and Momentum Style Score of A each but a dull Value Style Score of D. The company is expected to report after the closing bell on January 24 (see: all the Technology ETFs here).

Qualcomm has a Zacks Rank #3 and an Earnings ESP of +4.72%, pointing to a reasonable chance of beating estimates this quarter. Its earnings surprise track record over the past four quarters is good, with an average beat of 15.25%. However, the stock witnessed a negative earnings estimate revision of a couple of cents over the past 90 days for the yet-to-be-reported quarter. The stock has a Value and Momentum Style Score of B and A, respectively, and a Growth Style Score of D. The company will report after the closing bell on January 25.

NVIDIA is expected to release its earnings report on February 15. It has a Zacks Rank #2 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The company delivered positive earnings surprises in the last four quarters, with an average beat of 24.93% and saw solid earnings estimate revision of 30 cents over the past three months for the to-be-reported quarter. Further, the stock has a solid Growth and Momentum Style Score of A and B, respectively, but an unfavorable Value Style score of F.

Conclusion

Given the fact that most of the companies in the space have a track record of earnings beat and are expected to record earnings surprises in Q4 as well, semiconductor ETFs will certainly get a boost in the coming days. Currently, SOXX and PSI have a Zacks ETF Rank of #2 (Buy) while SMH has a Zacks ETF Rank of #3, suggesting their potential to outperform (read: Will Semiconductor ETFs Repeat This Year's Success in 2017?).

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Qualcomm Inc. (QCOM): Free Stock Analysis Report
 
Intel Corp. (INTC): Free Stock Analysis Report
 
Texas Instruments Inc. (TXN): Free Stock Analysis Report
 
Nvidia Corp. (NVDA): Free Stock Analysis Report
 
ISHARS-PHLX SEM (SOXX): ETF Research Reports
 
PWRSH-DYN SEMI (PSI): ETF Research Reports
 
VANECK-SEMICON (SMH): ETF Research Reports
 
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