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NVIDIA (NVDA) Q1 Earnings: Can the Stock Pull a Surprise?

NVIDIA Corporation NVDA is set to report first-quarter fiscal 2017 results on May 12. Last quarter, the company posted a positive earnings surprise of 9.38%. Additionally, NVIDIA has surpassed the Zacks Consensus Estimate in the last three out of the four quarters with an average positive surprise of 49.51%.

Let's see how things are shaping up for this announcement.

Factors to Consider

We believe that NVIDIA’s innovative product pipeline, and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that higher adoption of the company’s Tegra processors could act as a catalyst, going forward.

It is worth mentioning that NVIDIA’s focus on GRID platforms can increase GPU adoption in data centers, giving it an advantage over its competitors. We believe that its GRID enterprise virtual graphics, which improve the visual effects in games, will help drive future revenue and margin growth.

The company has been gaining traction in the gaming industry on the back of a strong line-up of advanced graphics cards such as ‘GeForce GTX 780 Ti’, ‘Maxwell’, the GeForce GT 730, GeForce GT 740, and the new GeForce GTX 750, GeForce GTX 800M, GeForce GTX 980 and 970, which have made it PC makers’ favorite graphics card provider.

Moreover, according to sources, worldwide PC gaming is growing at a CAGR of 10%. We believe that strong demand for PC gaming will provide tailwinds to NVIDIA. The company has always generated substantial revenues from its cards because of higher functionality.

Nonetheless, the continuous decline in PC sales is a cause of concern for NVIDIA’s GPU segment. Competition from the likes of Intel INTC and QUALCOMM Inc. also remains a near-term headwind.

Earnings Whispers

Our proven model does not conclusively show that NVIDIA will beat earnings this quarter. This 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.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 31 cents. Hence, the difference is 0.00%.

Zacks Rank: NVIDIA’s Zacks Rank #2 when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

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

TiVo Inc. TIVO, with an Earnings ESP of +25.00% and a Zacks Rank #1.

Intuit Inc. INTU, with an Earnings ESP of +0.66% and a Zacks Rank #2.

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TIVO INC (TIVO): Free Stock Analysis Report
 
INTUIT INC (INTU): Free Stock Analysis Report
 
INTEL CORP (INTC): Free Stock Analysis Report
 
NVIDIA CORP (NVDA): Free Stock Analysis Report
 
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