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Xilinx (XLNX) to Report Q1 Earnings: What's in the Cards?

Zacks Equity Research

Xilinx XLNX is set to report first-quarter fiscal 2020 results on Jul 25.

The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed it once, the average positive surprise being 5.88%.

In the last reported quarter, the company’s earnings of 94 cents per share were lower than the Zacks Consensus Estimate of 96 cents but substantially higher than the prior-year quarter’s 70 cents.

Revenues surged 30% year over year to $828 million and also outpaced the Zacks Consensus Estimate of $819 million, backed by strength in the wireless communications market, which is driven by the 5G momentum.

Guidance and Estimates for Q1

For first-quarter fiscal 2020, Xilinx projects revenues in the range of $835-$635 million.

The Zacks Consensus Estimate for revenues is pegged at $850.5 million, indicating growth of 24.3% from the year-ago reported figure. The Zacks Consensus Estimate for earnings stands at 94 cents, implying a rise of 27% from the prior-year reported number.

Xilinx, Inc. Price and EPS Surprise

Xilinx, Inc. Price and EPS Surprise

Xilinx, Inc. price-eps-surprise | Xilinx, Inc. Quote

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

Factors at Play

Xilinx’s first-quarter fiscal 2020 results are likely to be aided by a strong uptick in the Wired and Wireless Group (earlier Communications). Solidgrowth in the Wireless market attributable to early 5G production, pre-5G deployments and LTE upgrades is likely to be a consistent tailwind.

The company is also benefiting from rapid growth in advanced driver assist systems (ADAS), which is a key driver of its automotive business. Automotive, Broadcast and Consumer (ABC) segment is expected to grow in the fiscal first quarter with growth across all end-markets.

Moreover, the company anticipates the Data center segment (which declined in the March-quarter) to resume double-digit growth in the June-quarter as pause in demand from a customer witnessed in the last-reported quarter is expected to recover in the period to be reported.

However, the absence of cryptocurrency-related demand and soft demand for legacy products persist to be an overhang on the data center market, which makes us anxious about the stock.

Further, the company predicts AIT (A&D, Industrial and TME) to be down with the deteriorated in A&D and TME, more than offsetting industrial growth. Weak memory testing market is a key challenge too.

Moreover, 5G deployment and a few other product mixes are a threat to the company’s gross margin, which is forecast to be around 66% compared with 69.8% in the year-ago quarter.

Also, considering the timing of the shipment ban to Huawei, it remains to be seen how much impact it has on the company’s performance in the soon-to-be-reported quarter

What Our Model Says   

The proven Zacks model shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of surpassing estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Xilinx currently has a Zacks Rank of 4, which lowers the predictive power of ESP and an Earnings ESP of -1.81% in the combination, which makes surprise prediction unlikely for the stock this reporting cycle.

Stocks to Consider

Here are some stocks that you may consider as our model shows that these have the right mix of elements to beat on earnings in their upcoming releases:

United States Cellular Corporation USM has an Earnings ESP of +15.66% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank #2.

NetEase, Inc. NTES has an Earnings ESP of +8.63% and is a Zacks #2 Ranked player.

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