Big Week Of Earnings For Chip Sector: Which Companies Are Set Up For The Biggest Moves

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Includes: AMD, INTC, LRCX, MXIM, QCOM, TXN, XLNX
by: Rick Pendergraft

Summary

My analysis on seven chip companies that are announcing in the week ahead.

Three stocks have a better chance at moves higher than the others.

Two stocks show reasons for exercising caution.

This coming week is a big one for semiconductor companies and their earnings reports. I took note of seven prominent chip companies that are reporting between July 24 and July 26. The list includes Intel (Nasdaq: INTC), Advanced Micro Devices (Nasdaq: AMD), Texas Instruments (Nasdaq: TXN) as well as four others.

In order to try to dissect the information, I put together a table with what I felt were the most relevant items. For a quick snapshot of the fundamentals, I used IBD’s EPS rating and SMR rating. I looked at sentiment indicators such as the current estimate vs. where it was 30 days ago, the short interest ratio, analysts’ ratings, and the option open interest for the front week and front month.

From there, I used a color coding system to identify items I believe are bullish and ones that are either bearish or a concern. The dark green blocks are very bullish while the lighter green blocks are slightly bullish. The yellow items are a minor concern and the orange blocks are bigger concerns.

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In addition to the information in the table, I also looked at the technical strength for each stock. Looking at the performance numbers over the last year, Intel, Texas Instruments, and Maxim Integrated Products (Nasdaq: MXIM) have outperformed the VanEck Vectors Semiconductor ETF (NYSE: SMH). Advanced Micro matched the performance from the SMH, and Qualcomm (Nasdaq: QCOM), Xilinx (Nasdaq: XLNX), and Lam Research (Nasdaq: LRCX) have all three lagged the SMH.

Let’s break each stock down in the order in which they will report, starting with Texas Instruments. This is my favorite for a big upside move. The EPS rating is an 88 with an SMR rating of an A. Analysts are that bullish on the stock with more hold and sell ratings than buy ratings. The put/call ratio is relatively high and the stock has been one of the strongest of the bunch in terms of price performance, gaining 42.9% over the past year. The company has beat in three of the last four quarters and matched in the other one. The report in April came at the end of a pullback and the stock rallied from there.

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Advanced Micro Devices reports on Wednesday and it is the one of the two I am most cautious on. The company is one of the two weakest in terms of its fundamental ratings with an EPS rating of 51 and an SMR rating of a B. The short interest ratio is neutral and the analysts’ ratings are slightly bullish, but the put/call ratio is the lowest one of the bunch by far. The stock has moved up sharply since the last report, but the stock dropped sharply after each of the prior two earnings reports. The overall combination of fundamentals, sentiment, and technical factors isn’t enough for me to say I am bearish, but I am cautious.

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Qualcomm also reports on Wednesday and it has the worst fundamentals of the bunch with an EPS rating of 24 and an SMR rating of a B. The short interest ratio is the lowest one of the bunch and the analysts’ ratings are reflective of the stock’s poor relative performance compared to the rest of the industry and the overall market. After the earnings report last November the stock jumped sharply, after the earnings report in January the stock dropped sharply, and the earnings report in April came at a bottom. Like AMD, I don’t know that there is enough here to recommend shorting the stock, but I also wouldn’t be willing to bet on a big move to the upside. This one seems like a guessing game to me, it really could go either way.

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Xilinx is the third and final one to report on Wednesday. The fundamentals are slightly better than AMD and Qualcomm with an EPS rating of 73 and an A SMR rating. The short interest ratio is the second lowest and is low enough that a short-covering rally isn’t possible. The analysts’ ratings are the worst of the bunch with 18 hold and sell ratings compared to only seven buy ratings. The chart for Xilinx is better than Qualcomm’s, but the stock has struggled to gain any traction this year and it has dipped below its 52-week moving average. I would say I am moderately bullish on Xilinx, but think placing a trade before the earnings report would be a tough call. The last three moves after earnings have been mixed.

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Intel is the first of the three that report on Thursday and it is the one I have the biggest concerns about. The fundamentals are great with an EPS rating of 93 and an A SMR rating. The sentiment is about as neutral as there is in this bunch and the stock has performed well over the last few years. The problem lies with the jump in the EPS estimate. Yes, the company already tipped its hand with an announcement on June 21 said it had a great quarter. The company guided EPS up to $0.99 on revenue of $16.9 billion. The problem I have is that the expectations from investors may have been bumped even more than the guidance from the company and the boost by analysts. We saw it last month with Micron and the stock fell 15% in the two weeks following the earnings announcement. There is also a pattern of Intel beating estimates, jumping the day after the report and then giving everything back in the weeks following the report. Like I said with AMD, the fundamentals and the technical performance are good enough that I wouldn’t recommend shorting the stock, but I also wouldn’t rush to buy it before the earnings report.

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Lam Research reports on Thursday and it has a mixed outlook. The EPS rating is a 99 and that is the highest among the group and the highest rating possible. The company also gets an A in the SMR rating. Analysts have ratcheted down the EPS estimate from $4.99 to $4.94 and that is a usually a sign that investors have lowered their expectations as well. The analysts’ ratings are the most bullish with 16 buy ratings, three hold ratings and no sell ratings. The put/call ratio is over 1.0 and that is the highest of the bunch. The stock rose sharply from the beginning of 2016 until late 2017, but the moves have been choppy over the last eight months. All in all I like Lam Research and with the decline in the consensus estimate and the high put/call ratio, I think a move higher is more likely than a move lower. The stock did fall after each of its last two earnings reports, but the sentiment was much more bullish ahead of those reports.

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Maxim Integrated Products is the last of the seven we will cover and it has a pretty good outlook overall. The EPS rating is at 85 and the SMR rating is an A. The consensus estimate hasn’t been ratcheted up and the analysts’ ratings are somewhat bearish (bullish from a contrarian viewpoint) with 11 buy ratings, 14 hold ratings, and one sell rating. Considering the stock has been on a slow gradual climb over the last two and a half years, I would have expected analysts to be more bullish overall. The options open interest also reflects some skepticism with a put/call ratio of 0.835. There is one caveat to the put/call ratio though, there isn’t that much open interest on either side. Evaluating the three analysis styles—fundamental, sentiment, and technical, I think the greater probability is for an upside move after the report.

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Overall, I like the odds of upside moves for Texas Instruments, Lam Research and Maxim. I am neutral on the other four and wouldn’t necessarily recommend short positions on any of them ahead of the reports. I am most cautious on Intel and AMD due to what seem to be higher expectations than the others. I think Qualcomm and Xilinx could go either way with the indicators being so mixed.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.