Micron Technology Inc. and Applied Materials Inc are driving positive earnings revisions in the semiconductor sector, as the accompanying table shows. Analysts have more than doubled profit expectations for Micron and, on a total return basis, the stock has jumped 27.5 per cent so far in 2017. Applied Materials has seen a 23.7-per-cent jump in earnings expectations (an increase of 15 cents a share [U.S.] for the current year) and the stock is up more than 20 per cent, on a total return basis, year to date. Further down the list, analysts for graphics chip maker Nvidia have boosted the profit outlook by more than 10 per cent in the past three months, despite the stock’s weak performance.
A closer look at U.S. retail stocks makes them far less interesting as a group. Much of the improvement in outlook comes from Netflix Inc., a company that could easily be classified in technology or telecommunications rather than retail, and even in that case things aren’t quite as positive as they look at first glance. The 88.6-per-cent increase in projected earnings sounds impressive until we note that total earnings per share only increased by 21 cents. This leaves the forward price-to-earnings ratio at a still-stratospheric 99.7 times.
Lowe’s is vaguely interesting for investors expecting a pickup in the U.S. housing market but the 2.6-per-cent improvement in profit forecasts is hardly monumental.
CompanySymbol3M % Chg in EPS3M $ Chg in EPSTotal Rtn YTDP/E Trailing 12MForward P/E Semiconductors Micron Technology Inc.MU-Q125.6%$0.84 27.5%36.25.0 Applied Materials Inc.AMAT-Q23.7%$0.15 20.8%18.114.9 Advanced Micro DevicesAMD-Q13.7%$0.01 16.7%N/A194.6 Microchip Technology Inc.MCHP-Q13.0%$0.12 15.4%43.916.5 Nvidia Corp.NVDA-Q10.6%$0.08 -7.6%38.029.2 Retail Netflix Inc.NFLX-Q88.6%$0.21 14.5%337.499.7 Staples Inc.SPLS-Q3.0%$0.01 9.8%20.811.0 Lowe’s Cos Inc.LOW-N2.6%$0.03 16.6%20.217.9 Ulta Beauty Inc.ULTA-Q1.6%$0.03 12.3%43.035.4 Tractor Supply Co.TSCO-Q0.2%$0.00 -6.4%21.620.2
These screens were done with a specific purpose in mind – gauging short-term earnings momentum – and shouldn’t be regarded as conclusive grounds for any buy or sell transactions. The slight downward profit adjustments on energy stocks, for instance, aren’t that relevant when year-over-year earnings growth is expected to explode higher.
The strength in semiconductor and technology profitability is, however, potentially important and the topic is worth further study for investors.
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