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Semiconductor Stocks' Earnings on Oct 24: MLNX, AMD & XLNX

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Semiconductor Stocks' Earnings on Oct 24: MLNX, AMD & XLNX

Here is a sneak peek into how three semiconductor stocks are poised ahead of their earnings releases on Oct 24.

The third-quarter earnings season has begun, with results of 84 S&P 500 members out as of Oct 19. Per the latest Earnings Preview, total earnings of these 84 members increased 19.2% from the same period last year on 8.4% higher revenues, with 82.1% beating EPS estimates and 61.9% beating revenue estimates.

Further, the report suggests that third-quarter earnings for S&P 500 companies are projected to improve 19.2% year over year on 7.2% revenue increase.

The technology sector, of which semiconductor stocks are a part, appears to be quite strong. For the sector, earnings are expected to improve 15% year over year while revenues are likely to rise 11.4%. Notably, it is one of the 10 sectors anticipated to report double-digit earnings growth in the quarter to be reported.

Coming to semiconductors, the industry serves as a driver, enabler and indicator of technological progress. Robust demand for memory chips and other semiconductor products owing to the rapid adoption of cloud, Internet of Things, autonomous cars, advanced driver assisted systems, gaming, wearables, drones, virtual reality/ augmented reality devices and artificial intelligence (AI) are fueling growth in the space. The accelerated deployment of 5G technology is also likely to spur growth.

Notably, the Semiconductor Industry Association on Oct 1 said that global semiconductor sales reached $40.16 billion in August, up 14.9% year over year. Moreover, global semiconductor sales were 1.7% higher than July’s total of $39.49 billion. 

However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment as well as management’s ability to implement operating and strategic plans.

We note that the fears of trade war have been an overhang on chip stocks. With China being one of the biggest markets for semiconductors, investors are apprehensive about the impact of a full-fledged trade war on chip stocks.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) are best avoided.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Let’s see what’s in store for the following three semiconductor stocks slated to report on Oct 24.

Mellanox Technologies, Ltd. MLNX) is a fabless semiconductor company that develops high-speed interconnects solutions.The company is likely to beat third-quarter 2018 expectations as it has a favorable combination of a Zacks Rank #2 and an Earnings ESP of +1.04%.

The results are likely to benefit from strong adoption of Ethernet and InfiniBand based solutions. Strong demand from Original Equipment Manufacturers (OEMs), hyperscale, enterprise data centers, financial services and AI customers are a tailwind. (Read more: Mellanox to Report Q3 Earnings: Is a Beat in Store?)

Notably, the company beat the Zack Consensus Estimate in each of the trailing four quarters, delivering an average positive earnings surprise of 16.3%.

Mellanox Technologies, Ltd. Price and EPS Surprise

Mellanox Technologies, Ltd. Price and EPS Surprise | Mellanox Technologies, Ltd. Quote

Advanced Micro Devices, Inc. AMD, a provider of microprocessors (x86-based), chipsets, discrete graphics processing units (GPUs) and professional graphics also has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +2.63%.

The company’s third-quarter results are likely to benefit from portfolio strength and rapid adoption of its processors in PC, gaming and data center industries. (Read more: AMD's Q3 Earnings to Gain on Portfolio Strength & GPU Demand)

Notably, AMD came up with a positive surprise in each of the trailing four quarters, with the average surprise being 30.97%.

Advanced Micro Devices, Inc. Price and EPS Surprise

Advanced Micro Devices, Inc. Price and EPS Surprise | Advanced Micro Devices, Inc. Quote

Xilinx, Inc. XLNX, a designer and manufacturer of a broad range of high-performance, high-density programmable logic devices, has a Zacks Rank #3 but its Earnings ESP is -0.33%.

However, we note that the company beat the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive surprise of 5.95%.

We believe that the company’s fiscal second-quarter 2019 results will benefit from its strong product portfolio and growing adoption in key segments. (Read more: Xilinx to Report Q2 Earnings: What's in the Cards?)

You can see the complete list of today’s Zacks #1 Rank stocks here.

Xilinx, Inc. Price and EPS Surprise

Xilinx, Inc. Price and EPS Surprise | Xilinx, Inc. Quote

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