What the Buy SIde Expects from NVIDIA

NVIDIA Corp. (NVDA) is set to report FQ4 2014 earnings after the market closes on Wednesday, February 12th. NVIDIA is an American technology company known for its high octane GeForce brand graphics processing units (GPU) and more recently for producing system-on-a-chip (SOC) units for mobile computing. In January NVIDIA unveiled the 192 core Tegra K1 mobile processor, which performs faster than the processors from both Microsoft’s (MSFT) XBOX 360 and Sony’s (SONY) PS3. While the Tegra K1 may be a source of growth in the future, declining PC sales cause concern for NVDA’s GPU business. This quarter Wall Street is expecting a 36% decline in EPS and a 5% drop in sales compared to FQ4 last year. Here’s how investors expect NVIDIA to report.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

The current Wall Street consensus expectation is for NVDA to report 18c EPS and $1.052B revenue while the current Estimize.com consensus from 13 Buy Side and Independent contributing analysts is 21c EPS and $1.096B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting NVDA to beat Wall Street’s expectations on EPS and revenue by a wide margin.

Throughout the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting NVDA’s EPS everytime and has been more accurate in forecasting sales 3 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a wider differential than usual for NVDA.

This quarter analysts are expecting profit and revenue to be down slightly compared to FQ4 2013. The distribution of estimates published by analysts on the Estimize.com platform range from 18c to 26c EPS and $1.055B to $1.250B in revenues. This quarter we’re seeing a large distribution of estimates for NVDA compared to recent quarters, especially on revenue.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.

Throughout the quarter the EPS consensus from Wall Street fell from 21c to 18c while the Estimize EPS consensus began and ended the quarter at 21c. Over the same time period Wall Street lowered its revenue expectation from $1.079B to $1.052B while the Estimize forecast dropped from $1.121B to $1.096B. Timeliness is correlated with accuracy and decreasing revenue expectations at the very end of the quarter are often a bearish indicator, however the Estimize.com consensus is still much higher than Wall Street’s.

The analyst with the highest estimate confidence rating this quarter is CraigACook who projects 26c EPS and $1.250B in revenue. In the Winter 2014 season CraigACook rated as the 510th best analyst and is ranked 44th overall among over 3,800 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case CraigACook is making a very bullish call expecting NVIDIA to beat the Wall Street targets on EPS and revenue by wide margins.

This quarter analysts are expecting declining PC sales to hurt NVIDIA and for the company to report lower profit and less revenue than the same quarter last year. However, contributing analysts on the Estimize.com platform are also expecting NVDA to outperform Wall Street’s targets by a considerable margin in Wednesday’s report.

Get access to estimates for NVDA published by your Buy Side and Independent analyst peers and follow the rest of earnings season by heading over to Estimize.com. Register for free to create your own estimates and see how you stack up to Wall Street.