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Semtech (SMTC) to Report Q2 Earnings: What's in the Offing?

Zacks Equity Research

Semtech Corporation (SMTC) is set to report fiscal second-quarter 2020 results on Aug 28. It came up with in-line results in the last reported quarter.

The company’s surprise history has been pretty impressive. It beat estimates in three of the last four quarters, with average positive surprise of 1.75%.

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

Semtech Corporation Price and EPS Surprise


Semtech Corporation Price and EPS Surprise

Semtech Corporation price-eps-surprise | Semtech Corporation Quote

Factors at Play

Semtech has been 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 second quarter. Moreover, seasonality in the consumer segment is a matter of concern and may hamper top-line growth.

Also, geopolitical issues, and weakness in both the smartphone and data center end markets could impact its results.

However, both industrial and communications end markets might witness strong demand, aiding top-line growth in the to-be-reported 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 likely drive demand in these segments, thereby bolstering its upcoming results.

For the fiscal second quarter, management expects revenues on a non-gap basis in the range of $128-$142 million. The Zacks Consensus Estimate for revenues is pegged at $134.75 million.

Non-GAAP gross profit margin is expected within 61.9-62.5%. Management projects SG&A expenses within $28-$29 million, and research and development costs in the range of $24-$25 million. Non-GAAP earnings per share are projected in the band of 32-40 cents. The Zacks Consensus Estimate for earnings per share is pegged at 36 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 0.00%. 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 (Sell), which when combined with a negative ESP, makes surprise prediction difficult.

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

Stocks to Consider

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

Expedia Group, Inc. EXPE has an Earnings ESP of +0.86% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Check Point Software Technologies Ltd. CHKP has an Earnings ESP of +0.48% and a Zacks Rank #3.

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +0.43% and a Zacks Rank #3.

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