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Semtech (SMTC) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

Semtech Corporation SMTC is set to report fiscal first-quarter 2020 results on May 29. In the last reported quarter, it delivered a positive earnings surprise of 1.85%.

The company’s surprise history has been pretty impressive. It beat estimates in each of the last four quarters, with an average of 2.29%.

Let’s see how things are shaping up for this announcement.

Factors at Play

The key growth drivers for Semtech are product differentiation, operational flexibility, along with a specific focus on fast-growing segments and regions.

Both industrial and communications end markets might witness strong demand, aiding top-line growth in the upcoming quarter.

The growing need for more efficient energy management in home and industrial settings, increasing electronic system requirements for mobile devices, along with the propagation of green standards, will continue driving demand in these segments.

However, Semtech continues to be adversely impacted by mounting competition in the semiconductor space, including slowing demand in China. The resultant pricing pressure could dampen the company’s margins and profitability in the fiscal first quarter. Moreover, seasonality in the consumer segment is a matter of concern and may hamper top-line growth.

For the fiscal first quarter, management expects revenues on a non-gap basis in the range of $125-$135 million. The Zacks Consensus Estimate for revenues is pegged at $130.7 million.

Non-GAAP gross profit margin is expected within 61.9-62.5%. Management projects SG&A expenses within $26.5-$27.5 million, and research and development expenses in the range of $24.5-$25.5 million. Non-GAAP earnings per share are projected in the band of 30-36 cents. The Zacks Consensus Estimate for earnings per share is pegged at 34 cents.

Earnings Whispers

Our proven model does not conclusively show that Semtech will beat on earnings in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is -4.48%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Semtech currently carries a Zacks Rank #4, which when combined with a negative ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Semtech Corporation Price and EPS Surprise


Semtech Corporation Price and EPS Surprise

Semtech Corporation price-eps-surprise | Semtech Corporation Quote

Stocks to Consider

We see a likely earnings beat for each of the following companies in the upcoming releases:

Intuit Inc. INTU has an Earnings ESP of +0.57% and a Zacks Rank #2.

Autodesk, Inc. ADSK has an Earnings ESP of +0.18% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Netflix, Inc. NFLX has an Earnings ESP of +2.70% and a Zacks Rank #3.

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