Can OmniVision's (OVTI) Q2 Earnings Surprise Estimates? - Analyst Blog

OmniVision Technologies, Inc. (OVTI) is set to report fiscal second-quarter 2015 results on Dec 2. Last quarter, it posted a 100.0% positive surprise. Let's see how things are shaping up for this announcement.

Factors at Play

OmniVision reported strong first-quarter results with both the top and bottom lines exceeding the Zacks Consensus Estimate. Revenues were driven by strength in mobile phone and automotive businesses. The mobile phone market was the main contributor and constituted 69% of total revenues.

The increase in mobile sales was due to significant growth in the Asian business, particularly smartphone original equipment manufacturers (OEMs) in China. OmniVision has consistently been solidifying its position in the handset market and expanded into other areas by leveraging its advanced technology.

However, its entertainment end market and notebook and webcam segment revenues were lower compared to the previous quarter.

Given OmniVision's product roadmap, growth prospects, cost structure improvement, market diversification and management execution, it will be able to deal with the short product life cycles.

Moreover, its pixel technology and camera-cube chip technology for low-resolution cameras and increasing adoption of its camera sensors at major automobile OEMs will further boost its revenues.

For the second quarter, OmniVision expects revenues in the range of $360.0–$390.0 million. GAAP earnings per share are expected in the range of 29–45 cents while non-GAAP earnings per share, excluding share-based compensation and the associated tax impact, are expected in the range of 43–59 cents. The Zacks Consensus Estimate is pegged at 34 cents per share.

Earnings Whispers?

Our proven model does not conclusively show that OmniVision 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 37 cents. Therefore, the ESP for the stock is 0.00%.

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

We caution against stocks with Zacks Ranks #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 can consider the following stocks with a favorable combination of a positive Earnings ESP and Zacks Rank #1, 2 or 3:

Esterline Technologies Corp. (ESL), with Earnings ESP of +5.35% and a Zacks Rank #2 (Buy)

Red Hat, Inc. (RHT), with Earnings ESP of +3.70% and a Zacks Rank #2

Adobe Systems Inc. (ADBE), with Earnings ESP of +5.88% and a Zacks Rank #3