Second quarter earnings season is winding down. By most measures, this has been one of the best earnings seasons in a long time.
Around 66% of companies in the S&P 500 have delivered positive earnings surprises. That is pretty much in-line with the 4-quarter average. But the number that really stands out is the growth rate. Earnings are up a solid 8.5% from the same quarter last year.
While earnings tend to garner most of the attention, I'm much more impressed by a company that beats on both the bottom line and the top line. That's because earnings can often be "massaged" by management to come in a penny or two ahead of consensus. But revenue is generally much less susceptible (although certainly not immune) to manipulation.
So far in Q2, a solid 61% of companies have beaten expectations on the top-line. That's well above the 4-quarter average of 55%. And growth has been pretty decent too with revenues up 4.5%.
The Triple Play
Positive revenue and earnings surprises are great, but if management guidance is weak and/or if analysts revise their earnings estimates lower, a stock can still get punished. That has been the case for many stocks this earnings season.
Overall, estimates for S&P 500 total earnings in the third quarter have trended lower as earnings season has progressed. At the start of the quarter, the consensus was calling for 6.3% total earnings growth for Q3. That number has been shaved down to 4.2%. However, the magnitude of these negative revisions is actually a notable improvement from what we have seen in recent quarters.
Earnings and revenue beats simply are not enough. The true winners from earnings season are those who can deliver the coveted "Triple Play":
- A positive earnings surprise
- A positive revenue surprise, and
- Significant positive earnings estimate revisions
And as the well-documented "post-earnings announcement drift" shows, these blow out quarters are often handsomely rewarded by the market for several weeks after a company reports.
4 Triple Plays
So which companies have delivered the coveted "Triple Play" this earnings season? I ran a screen in Research Wizard, and here are 4 of the top companies from the list:
Silicon Motion Technology (NASDAQ:SIMO)
EPS Surprise: 32%
Revenue Surprise: 6%
4-Week Change in 2014 Consensus: 24%
4-Week Change in 2015 Consensus: 24%
Silicon Motion Technology is a fabless semiconductor company that develops semiconductor solutions for customers in the mobile storage and mobile communications markets.
The company delivered strong Q2 results on July 28 as both earnings and revenue crushed analysts' expectations. Management also provided bullish guidance for the full year, prompting analysts to revise their estimates significantly higher. It is a Zacks Rank #1 (Strong Buy) stock.
RF Micro Devices (RFMD)
EPS Surprise: 40%
Revenue Surprise: 4%
4-Week Change in 2015 Consensus: 37%
4-Week Change in 2016 Consensus: 29%
RF Micro Devices designs and manufactures semiconductor components that provide enhanced connectivity and support advanced functionality in the cellular handset, wireless infrastructure, wireless local area network (OTCPK:WLAN), CATV/broadband and aerospace and defense markets.
The company reported stellar results for its fiscal 2015 first quarter on July 24. Revenue increased 24% from the prior quarter to a record $316.3 million while the gross margin expanded a whopping 1,310 basis points year-over-year to 45.0%. Analysts raised their estimates significantly higher for both fiscal 2015 and fiscal 2016 following the report. This sent the stock to a Zacks Rank #1 (Strong Buy).
Dice Holdings (NYSE:DHX)
EPS Surprise: 86%
Revenue Surprise: 6%
4-Week Change in 2014 Consensus: 36%
4-Week Change in 2015 Consensus: 22%
Dice Holdings provides specialized websites and career fairs for select professional communities, including technology and engineering, financial services, energy, healthcare, hospitality and security clearance.
On July 30, Dice Holdings delivered second quarter results well above expectations. Revenues jumped 28% year-over-year to $66.5 million, well ahead of the consensus of $63.0 million. And EPS of 13 cents was nearly double the consensus of 7 cents. Management also provided full year EPS guidance well above consensus at the time, prompting a flurry of positive estimate revisions. This sent the stock to a Zacks Rank #2 (Buy).
EPS Surprise: 66%
Revenue Surprise: 16%
4-Week Change in 2014 Consensus: 17%
4-Week Change in 2015 Consensus: 11%
Footwear company SKECHERS crushed expectations once again when it reported its second quarter results on July 23. Just like in Q1, higher sales and expanding profit margins led to huge earnings growth year-over-year.
And due to continued increased backlogs at the end of June and strong revenues in July, management believes that the company's positive momentum will continue through the remainder of the year. Analysts have revised their estimates significantly higher for both 2014 and 2015 after the Q2 report, sending the stock to a Zacks Rank #1 (Strong Buy).
The Bottom Line
Overall, second quarter earnings season has been solid. And these four companies stand out in particular as each delivered the coveted "triple play" and are well-positioned to run higher over the coming weeks.
RF MICRO DEVICE (RFMD): Free Stock Analysis Report (email registration required)