Will Altera's (ALTR) Earnings Surprise Estimates in Q2?

Altera Corporation ALTR is expected to report second-quarter 2015 results on Jul 23. Last quarter, the company posted a negative earnings surprise of 3.1%. Let us see how things are shaping up for this announcement.

Factors to Consider

Altera posted dismal first-quarter 2015 results wherein both the top and the bottom lines missed the respective Zacks Consensus Estimate and compared unfavorably year over year.

The year-over-year decline was mainly due to weak performance by the company's telecom and wireless business, resulting from capital equipment delays from carriers in China, Japan, the U.S., and some developing countries.

Nonetheless, growth in 3G and 4G/LTE deployments, in particular, will increase the demand for FPGAs, which will be beneficial for Altera. Additionally, the company's transition to 14-nm FPGAs in association with Intel Corp. INTC is likely to be a competitive differentiator.

Altera is currently manufacturing its chips using 28-nm nodes. We believe that the deployment will strengthen its product portfolio and offer more comprehensive and high-value programmable solutions. Moreover, the continued share buybacks should support the bottom line, going forward.

However, macroeconomic weakness, competition from Xilinx Inc. and Lattice Semiconductor Corporation, consolidation in the telecom market, declining margins and volatility in the semiconductor market are concerns.

Earnings Whispers

Our proven model does not conclusively show that Altera will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 25 cents. Hence, the difference is 0.00%.

Zacks Rank: Altera's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Amazon.com Inc. AMZN, with an Earnings ESP of +33.33% and a Zacks Rank #2 (Buy)

Fortinet Inc. FTNT, with an Earnings ESP of +100.0% and a Zacks Rank #3

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