SunEdison Semiconductor (SEMI) Q2 Earnings: What's Up?

SunEdison Semiconductor Limited (NASDAQ:SEMI) is expected to report second-quarter 2016 results on Aug 3. Last quarter, the company posted a negative earnings surprise of 2.04%.

Factors to Consider

SunEdison witnessed sequential revenue growth of 0.3% in the first quarter, driven mainly by strong large-diameter wafer demand.

The $34.2 million that the company received in the quarter as customer deposit is expected to boost investments in improved production capacities especially in its Korean facility.

This investment will also help the company to improve the wafer mix and thereby its profitability going forward.

A weak pricing environment was a major headwind, but the improving mix and manufacturing cost reductions helped offset the impact.

Price erosion is expected to continue given tightening demand-supply scenario in 300 millimeter, seasonal inventory levels and a strengthening yen.

To cope up, the company continues to focus on cost reduction goals and plans to close its Malaysia facility by the end of September, transferring all the capacity to Italy.

Overall, the company’s unique global presence with facilities close to biggest customers, cutting-edge technologies in SOI and epi and strong focus on operational execution could boost growth and profitability.

Earnings Whispers

Our proven model does not conclusively show that SunEdison will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The Most Accurate estimate is pegged at a loss of 56 cents while the Zacks Consensus Estimate stands at a loss of 50 cents. Hence, the difference is -12.00%.

Zacks Rank: SunEdison Semiconductor’s Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

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

Avista Corp. (NYSE:AVA) with an Earnings ESP of +2.33% and Zacks Rank #2.

Alibaba Group Holding Limited (NYSE:BABA) with an Earnings ESP of +28.95% and Zacks Rank #3.

Paycom Software, Inc. (NYSE:PAYC) with an Earnings ESP of +7.69% and a Zacks Rank #3.

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