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What's in Store for TE Connectivity (TEL) in Q3 Earnings?

TE Connectivity Ltd. TEL is scheduled to report third-quarter fiscal 2017 results before the opening bell on Jul 26.

The company has an excellent earnings surprise history, with an average positive surprise of 8.9% for the trailing four quarters. TE Connectivity scored its sixth consecutive earnings beat in the last reported quarter, beating estimates by 10.2%.

Let's see how things are shaping up for this announcement and whether TE Connectivity is set to add yet another earnings beat to its winning streak.

Factors to Consider

TE Connectivity’s harsh environment business applications, which have been a staple top-line growth driver for the past five years, will continue to stoke growth for the soon-to-be-reported quarter as well. In recent times, the company has been witnessing decent increase in organic revenues, fueled by strong demand in the end markets. Especially, growth in global auto production and thriving heavy truck business is likely to act as major catalysts for the third-quarter results.  

Apart from its transportation business, robust performances of the other two businesses, namely, Industrial and Communications Solutions, have been driving its operating margin expansion significantly in recent times. Post the Creganna and Intercontec acquisitions, Industrial business has been on an uptick. We believe TE Connectivity’s robust inorganic growth will continue to boost its third-quarter financials as well.

Of late, the company’s overarching business model has been conducive to its bottom-line and margin expansion. During the last reported quarter, the “TEOA Operating System” helped the company improve organic sales by 8%, adjusted EPS by 32% and adjusted operating margins by 16.6%. Also, the company’s concerted efforts to bring down its operating costs and the savings generated from there are expected to positively impact the fiscal third-quarter results as well.

Despite these positives, TE Connectivity’s sluggishness in oil and gas markets and its derivative impact on other industrial markets is expected to negatively impact growth to some extent. Also, stiff competition from both direct and indirect players in the market are likely to hurt margins for the soon-to-be-reported quarter. In addition, the company has been suffering from poor sales through distribution channels, which is taking longer than expected to recover. This issue is expected to weigh down on third-quarter sales as well. 

Earnings Whispers

Our proven model does not conclusively show that TE Connectivity will beat on 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. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for the company is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.17. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

TE Connectivity Ltd. Price and EPS Surprise


TE Connectivity Ltd. Price and EPS Surprise | TE Connectivity Ltd. Quote

Zacks Rank: TE Connectivity has a Zacks Rank #2. Though Zacks Rank #1, 2 and 3 increase the predictive power of the ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Stocks That Warrant a Look

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

CACI International Inc CACI has an Earnings ESP of +1.83% and a Zacks Rank #2.

Broadcom Limited AVGO has an Earnings ESP of +2.57% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axcelis Technologies, Inc. ACLS has an Earnings ESP of +3.03% and a Zacks Rank #2.

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