Will Texas Instruments (TXN) Surprise Q3 Earnings? - Analyst Blog

Texas Instruments (TXN), or "TI”, is set to report third-quarter 2014 results on Oct 20. Last quarter, the company posted a 5.1% positive surprise. Let's see how things are shaping up for this announcement.

Factors to Consider this Past Quarter

Texas Instrument's second-quarter earnings surpassed the Zacks Consensus Estimate driven by an improving mix of business and efficient cost control. However, revenues were down 10.4% sequentially but up 8% year over year. Distributor resales jumped 10% from the last year.

Texas Instrument's gross margin of 57.1% was was up 327 basis points (bps) sequentially and 561 bps from the year-ago quarter. Higher volumes led to the sequential increase.

Texas Instrument's compelling product line-up, the increasing differentiation in its business and lower-cost 300-mm capacity should drive earnings, going forward. Recently, the company increased its dividend, indicating its confidence about the steady cash flows.

For the third quarter of 2014, TI expects revenues within $3.31–$3.59 billion. Earnings per share are expected in the range of 66–76 cents, the mid-point of 71 cents being in line with the Zacks Consensus Estimate.

Earnings Whispers?

Our proven model does not conclusively show that Texas Instruments will beat earnings this quarter. That 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 71 cents. Hence, the difference is 0.00%.

Zacks Rank: Texas Instrument has a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.

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

Other Stocks to Consider

You could consider other stocks with a positive Earnings ESP and a Zacks Rank #1, 2 or 3 such as:

United Insurance Holdings Corp. (UIHC), with an Earnings ESP of +2.70% and a Zacks Rank #1 (Strong Buy).

B/E Aerospace Inc. (BEAV), with an Earnings ESP of +1.74% and a Zacks Rank #1.

Kirby Corporation (KEX), with an Earnings ESP of +2.92% and a Zacks Rank #1.

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