Technology stocks are anticipated to show a lackluster third-quarter 2019 performance, primarily due to softness in the semiconductor space.
Semiconductors, which are the building blocks of most emerging technologies like AI and IoT, reported weak sales in July and August. This was largely because higher tariffs on electronics, thanks to the U.S.-China trade tussle, negatively impacted demand for chips.
Additionally, restriction on sales to Huawei dampened results of companies like Micron MU, which provided sluggish guidance.
Moreover, lower demand from smartphone OEMs continues to hurt growth. Notably, Korean smartphone giant Samsung provided sluggish guidance for the third quarter. Per a CNBC report, the company expects consolidated operating profit of 7.7 trillion Korean won ($6.43 billion), down 56.2% year over year.
Further, sluggish server market growth due to lower demand from enterprise buyers and hyperscale companies and weak China market are major headwinds.
PC Shipment Rises, Apple Launches New iPhones
Nevertheless, growth in third-quarter PC shipments are expected to have benefited the top line of companies like Lenovo, HP and Dell Technologies DELL.
However, Apple’s AAPL MacBook lineup suffered from a supply crunch, which is expected to have hurt the top line. The company is increasingly relying on its services segment for growth as the iPhone category is facing increasing competition from Chinese smartphone vendors.
Notably, Apple launched its new iPhone 11 on Sep 20, which has gained solid traction, per company CEO Tim Cook.
Growth Drivers Aplenty
Tech companies are also expected to have benefited from the rapid adoption of cloud computing, AI, IoT, cloud-based gaming, wearables and drones.
Furthermore, solid demand for AI-infused virtual assistants continues to drive demand for smart speakers like Amazon Echo and Google Home.
Moreover, the growing preference for online gaming, music and video-streaming services is a major growth driver. Further, the proliferation of IoT, which is facilitating connected devices and smart homes, is a key catalyst.
The accelerated deployment of 5G technology — the next-generation of wireless connectivity — is also likely to have spurred growth for tech companies this earnings season.
How to Make the Right Pick?
With the presence of several industry players, finding the right technology stocks having the potential to beat earnings estimates can be daunting. Our proprietary methodology, however, makes it fairly simple.
You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks, which have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Given below are five technology stocks that have the right combination of elements to post an earnings beat this reporting cycle:
Round Rock, TX-based Dell Technologies is set to report third-quarter fiscal 2020 results on Nov 26. The company has an Earnings ESP of +0.78% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for earnings has increased 2.6% to $1.55 over the past 30 days.
Dell Technologies Inc. Price and EPS Surprise
Dell Technologies Inc. price-eps-surprise | Dell Technologies Inc. Quote
Walldorf, Germany-based SAP SE SAP has a Zacks Rank #3 and an Earnings ESP of +4.35%.
The company is scheduled to report third-quarter 2019 results on Oct 21. The consensus mark for earnings has increased 4.5% to $1.38 over the past 30 days.
SAP SE Price and EPS Surprise
SAP SE price-eps-surprise | SAP SE Quote
Phoenix, AZ-based Avnet AVT has a Zacks Rank #3 and an Earnings ESP of +2.68%.
The company is set to report third-quarter 2019 results on Oct 24. The consensus mark for earnings has been stable at 65 cents over the past 30 days.
Avnet, Inc. Price and EPS Surprise
Avnet, Inc. price-eps-surprise | Avnet, Inc. Quote
Tel Aviv, Israel-based Check Point Software Technologies CHKP has a Zacks Rank #3 and an Earnings ESP of +2.68%. The company is scheduled to report third-quarter 2019 results on Oct 28.
The Zacks Consensus Estimate for earnings has stayed at $1.40 over the past month.
Check Point Software Technologies Ltd. Price and EPS Surprise
Check Point Software Technologies Ltd. price-eps-surprise | Check Point Software Technologies Ltd. Quote
Chicago, IL-based Littelfuse LFUS has a Zacks Rank #3 and an Earnings ESP of +2.68%. The company is scheduled to report third-quarter 2019 results on Oct 30.
The Zacks Consensus Estimate for earnings has increased by a penny to $1.57 over the past 30 days.
Littelfuse, Inc. Price and EPS Surprise
Littelfuse, Inc. price-eps-surprise | Littelfuse, Inc. Quote
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