Samsung Signaling A Tech Earnings Surprise

| About: Samsung Electronics (SSNLF)

Summary

Samsung had a pretty good quarter, with Galaxy S7 sales strong.

Earnings estimates for U.S. tech companies seem muted, but some are being taken up.

There are some bargains in low P/E names that could surprise.

Technology earnings season began early this week with an announcement from Samsung (OTC:SSNLF) that investors should take note of.

Samsung, which has been the Philadelphia Phillies among tech companies for two years, reported a turnaround, boosted by smartphone sales. Specifically, the Galaxy S7 saw 25% more sales than the earlier S6.

This tells us some interesting things. There is an appetite for new features on devices. There is demand. There is growth available. You might conclude that Samsung is tearing up the track, leaving U.S. companies in the dust, combining the strengths of an Intel (NASDAQ:INTC) in chips and an Apple (NASDAQ:AAPL) in devices.

I consider that last unlikely. It tells me that technology earnings, when they come out later this month, could show some positive surprises.

Numbers on Microsoft (NASDAQ:MSFT) are already showing movement. The "whisper number" for the company is up to 62 cents per share on sales of $22.17 billion. The earnings would be on par with the last Christmas quarter, and the same with the top line.

After I wrote negatively on IBM (NYSE:IBM) recently, I got a lot of push-back from readers persuaded, possibly by earnings whispers, that a turnaround is coming there. The current estimate for revenue is $20 billion, down only slightly from last year's $20.81 billion, and profits of $2.93 share, six cents ahead of the official estimate of $2.87 and well ahead of the $2.09/share from the first quarter.

Numbers are being taken up on stocks that are relatively cheap. Take out the Nokia (NYSE:NOK) write-offs from last year, and Microsoft's price/earnings multiple for the last four quarters is near that of the market. Apple, of course, has a P/E of 10.7; IBM 11.5.

What about higher valuation tech stocks? Facebook (NASDAQ:FB) with its 71 P/E is expected to post revenue of $6 billion, up from $5.3 billion in the last quarter. Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) with a P/E near 30 is expected to have earnings of $6.47/share on revenue of $20.76 billion. Compare this to $6.02/share in earnings and $20.26 billion in revenue last quarter. These are modest numbers. They could easily be too modest based on what's happened with Samsung.

How about Intel (INTC), Samsung's chip rival, which reports on July 20? There the whisper number is 55 cents on $13.53 billion in revenue compared with earnings of 42 cents and revenue of $13.7 billion last quarter. The official earnings estimate, it should be noted, is 53 cents. Intel, it should be added, currently sports a P/E of 14, based on the fact the last quarter was such a disappointment, with lower sales, profits and operating margins.

While it is certainly possible that Samsung is an outlier, benefiting from a slow Apple refresh on its iPhones, in other words, there also are some hints of numbers being taken up across the big tech complex, and many of these stocks are at below-market multiples. My spidey sense is for some upside surprises.

Disclosure: I am/we are long AAPL, INTC, MSFT, GOOGL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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