Will Qorvo (QRVO) Miss Q3 Earnings on Expected Low Sales?

Leading semiconductor manufacturer Qorvo, Inc. QRVO is scheduled to report its third-quarter fiscal 2016 results after the closing bell on Feb 4. In the last reported quarter, adjusted earnings comfortably beat the Zacks Consensus Estimate by 13 cents. The company has beaten earnings estimates thrice in the last four quarters with an average positive earnings surprise of 12%. Let's see how things are shaping up for this announcement.

Key Factors in the Third Quarter

A few weeks back, Qorvo offered a sneak peek into its third-quarter fiscal 2016 results, wherein it revised its top-line guidance. Citing weaker-than-anticipated sales, Qorvo lowered its revenue outlook for the soon-to-be-reported quarter.

Earlier, in concurrence with the second-quarter fiscal 2016 results, Qorvo offered a relatively bullish guidance for the third quarter. Revenues for third-quarter fiscal 2016 were expected to increase on a sequential basis to $720 million – $730 million, while earnings per share were expected in the range of $1.25 to $1.30.

However, Qorvo currently expects its third-quarter revenues to decline significantly to approximately $620 million, owing to soft customer demand in the Mobile Products segment. This is likely to have an adverse effect on the earnings as well. The overall macroeconomic turmoil had a detrimental effect on Qorvo. Changes in business and economic conditions, including downturns in the semiconductor industry and the overall economy have also played a part in the downturn.

In addition, Qorvo operates in a competitive landscape that is becoming increasingly complex with low barriers to entry. As each player strives to win designs to have a greater pie in the market, the battle gets murkier. The increased competition is exerting pricing pressure, which remains an additional headwind.

Earnings Whispers

Our proven model does not conclusively show that Qorvo is likely to beat earnings this quarter as it lacks the key components. 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. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently 0.00%.

Zacks Rank: Qorvo's Zacks Rank #3 when combined with 0.00% ESP makes an earnings beat prediction uncertain. On the other hand, the Sell-rated stocks (#4 and #5) should never be considered going into an 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 these have the right combination of elements to post an earnings beat this quarter:

American Capital, Ltd. ACAS, earnings ESP of +12.50% and a Zacks Rank #1.

Gilead Sciences Inc. GILD, earnings ESP of +2.75% and a Zacks Rank #1.

ServiceMaster Global Holdings, Inc. SERV, earnings ESP of +3.23% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
QORVO INC (QRVO): Free Stock Analysis Report
 
SERVICEMASTR GH SERV: Free Stock Analysis Report
 
AMER CAP LTD ACAS: Free Stock Analysis Report
 
GILEAD SCIENCES GILD: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research