Can TE Connectivity (TEL) Beat Earnings Again This Season?

TE Connectivity Ltd. TEL, the market leader in the connectivity business with a comprehensive portfolio, is scheduled to release its fiscal third-quarter 2014 financial results before the opening bell on Jul 23.

In the last reported quarter, TE Connectivity posted an earnings beat of 4.40%. Further, the company had delivered positive earnings surprises in all four quarters with an average beat of 5.06%. Let us see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that TE Connectivity is likely to beat earnings as it ensures the required combination of two key components.

Zacks ESP: TE Connectivity has a positive Zacks ESP. That is because the Earnings ESP, which represents the difference between the Most Accurate estimate of $1.01 per share and the Zacks Consensus Estimate of $0.99, is +2.02%.

Zacks Rank: TE Connectivity has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing zero or negative estimate revisions momentum. The combination of TE Connectivity's Zacks Rank #2 and +2.02% Earnings ESP raise the prospect of an earnings beat on Jul 23.

What is Driving the Better Than Expected Earnings?

TE Connectivity had been benefiting from the strength in its Transportation Solutions segment, supported by healthy growth in the Industrial Solutions segment, Telecom Networks and Appliances businesses. However, its Network Solutions and Consumer Solutions segments have been exhibiting a sluggish performance.

Further, the company has initiated a restructuring process in order to remain competitive by reducing costs. Therefore, it is in the process of simplifying its global manufacturing footprint by shifting facilities from higher-cost to lower-cost countries, consolidating within countries and transferring product lines to lower-cost countries.

Moreover, the company's strong cash generating capacity is enabling it to pursue strategic acquisitions while also driving organic growth. In the quarter, the company closed the $490 million transaction for the acquisition of the SEACON Group. Prior to this, the company had signed an agreement to acquire global designer and manufacturer of sensor and sensor-based systems, Measurement Specialties Inc. for about $1.7 billion. The acquisition is expected to prove accretive to the company's earnings in fiscal 2015.  

This apart, TE Connectivity also upgraded its Distributed Antenna Systems (DAS) to enhance mobile service for All-Star Baseball Game at Target Field, Minnesota. The company had introduced the public safety DAS in Jun 2014. Alongside, it collaborated with Fiber-Span to enhance its DAS offerings via a novel platform that can support all the key frequency bands used by public safety agencies.  

Other Stocks to Consider

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

Gentiva Health Services Inc. GTIV, with earnings ESP of +37.50% and a Zacks Rank #1 (Strong Buy).

Meritor, Inc.MTOR, with earnings ESP of +6.67% and a Zacks Rank #1.

Silicon Motion Technology Corp.SIMO, with earnings ESP of +33.33% and a Zacks Rank #1.

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