PMC-Sierra Inc. (PMCS) is set to report the third-quarter 2014 results on Oct 27. Last quarter, the company posted 20.0% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

PMC-Sierra’s second-quarter earnings of 6 cents exceeded the Zacks Consensus Estimate by a penny on higher revenues and strong margins. Also, revenues were up sequentially and beat the Zacks Consensus Estimate of $125.0 million, driven by strong demand for the company’s optical and mobile products, partially offset by weak demand for storage products.

Additionally, margins of 71% were up 70 basis points (bps) sequentially and 50 bps from the year-ago quarter driven by a favorable product mix.

For the third quarter, management expects revenues in the range of $130–$138 million, down 6% sequentially at the mid-point. Non-GAAP gross margin is expected to be 70–71%. Operating expenses are predicted to be approximately $73–$75 million and earnings per share of 10 cents.

Earnings Whispers?

Our proven model does not conclusively show that PMC-Sierra will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 7 cents. Hence, the difference is 0.00%.

Zacks Rank: PMC-Sierra’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

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

Other Stocks to Consider

You could consider other stocks with a positive Earnings ESP and a favorable Zacks Rank such as:

The New York Times Company (NYT), with an Earnings ESP of +100.0% and a Zacks Rank #1 (Strong Buy).

Westlake Chemical Corp (WLK), with an Earnings ESP of +2.58% and a Zacks Rank #1.

Pacific Coast Oil Trust (ROYT), with an Earnings ESP of +8.11% and a Zacks Rank #1.

Read the Full Research Report on PMCS
Read the Full Research Report on WLK
Read the Full Research Report on NYT
Read the Full Research Report on ROYT


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