Second-quarter earnings season is winding down, and by most measures, this has been one of the best earnings seasons in a long time. Around 66% of companies in the S&P 500 delivered positive earnings surprises, but the number that really stands out is the growth rate. Earnings are up a solid 8.5% year over year.
So far in Q2, a solid 61% of companies have beaten expectations on the top line. That’s well above the Q4 average of 55%, and growth has been pretty decent too with revenues up 4.5%.
Positive revenue and earnings surprises are great. However, if management guidance is weak and/or if analysts revise their earnings estimates lower, a stock can still get punished with negative revisions after a good quarter, which is the case for many stocks this earnings season.
The Triple Play
Overall, estimates for S&P 500 total earnings in the third quarter have trended lower as earnings season has progressed. At the start of the quarter, the consensus predicted 6.3% total earnings growth for Q3. Since then, the expectation has dropped to 4.2%. However, the magnitude of these negative revisions is actually a notable improvement from what we have seen in recent quarters.
Earnings and revenue beats simply are not enough to be strong stocks to buy. The true winners from earnings season are those who can deliver the coveted “Triple Play”: A positive earnings surprise, positive revenue surprise, and significant positive earnings estimate revisions.
So which companies have delivered the coveted “Triple Play” this earnings season? I ran a screen in Research Wizard, and here are four of the resulting stocks to buy:
Silicon Motion Technology (SIMO)
EPS Surprise: 32%
Revenue Surprise: 6%
4-Week Change in 2014 Consensus: 24%
4-Week Change in 2015 Consensus: 24%
Silicon Motion Technology (SIMO) develops semiconductor solutions for customers in the mobile storage and mobile communications markets.
Silicon Motion delivered strong Q2 results on July 28 as both earnings and revenue crushed analysts’ expectations. Management also provided bullish guidance for the full year, prompting analysts to revise their estimates significantly higher. Zacks ranks SIMO a “strong buy.”
RF Micro Devices (RFMD)
EPS Surprise: 40%
Revenue Surprise: 4%
4-Week Change in 2015 Consensus: 37%
4-Week Change in 2016 Consensus: 29%
RF Micro Devices (RFMD) designs and manufactures semiconductor components that provide enhanced connectivity and support advanced functionality in the cellular handset, wireless infrastructure, CATV/broadband and aerospace, wireless local area network (WLAN) and defense markets.
RF MIcro Devices reported stellar results for its fiscal 2015 first quarter on July 24. Revenue increased 24% quarter over quarter to a record $316.3 million while the gross margin expanded a whopping 1,310 basis points year over year to 45%. Analysts raised their estimates significantly for both fiscal 2015 and fiscal 2016 following the report, which earned RFMD a “strong buy” ranking.
Dice Holdings (DHX)
EPS Surprise: 86%
Revenue Surprise: 6%
4-Week Change in 2014 Consensus: 36%
4-Week Change in 2015 Consensus: 22%
Dice Holdings (DHX) provides specialized websites and career fairs for select professional communities, including technology and engineering, financial services, energy, healthcare, hospitality and security clearance.
On July 30, Dice Holdings delivered second quarter results well above expectations. Revenues jumped 28% year over year to $66.5 million, well ahead of the $63 million consensus. Plus, earnings-per-share of 13 cents nearly doubled the consensus of 7 cents. Dice management also provided full-year EPS guidance well above consensus at the time, prompting a flurry of positive estimate revisions. Zacks ranks DHX stock a “buy.”
EPS Surprise: 66%
Revenue Surprise: 16%
4-Week Change in 2014 Consensus: 17%
4-Week Change in 2015 Consensus: 11%
Footwear company Skechers (SKX) crushed expectations once again when it reported its second-quarter results on July 23. Just like in Q1, higher sales and expanding profit margins led to huge earnings growth year over year.
Due to continued increased backlogs at the end of June and strong revenues in July, management believes that Skechers’ positive momentum will continue through the remainder of the year. Analysts have revised their estimates significantly higher for both 2014 and 2015 after the Q2 report, sending SKY stock to a “strong buy” in Zacks ranking system.
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