Wednesday, February 19, 2020

Is Analog Devices About To Report Poor Results?

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What’s happening: Analog Devices is scheduled to report its fiscal first-quarter results before the opening bell on Wednesday, February 19. The semiconductor giant is widely expected to report a massive decline in earnings.

What happened: Over the past five years, Analog Devices has grown its earnings by around 13% every year. Its share price reflects this performance, having appreciated by about 15% per annum, registering a whopping 102% gain over the past five years.

The Massachusetts-based company’s recent performance has, however, left investors worried. After having beaten expectations for three quarters, Analog Devices reported a negative earnings surprise of 1.7% in the fourth quarter. Over the past month, there have been downward revisions in earnings and revenue estimates for the most recent quarter. Analog Devices is now likely to report a huge decline in both revenue and earnings.

  • The consensus revenue estimate stands at $1.30 billion, representing a 15.6% year-over-year decline.
  • The estimate for earnings is $1.00 per share, 24.8% lower than the figure reported for the same quarter in the previous year.

Why it matters: Analog Devices is likely to have benefitted from strength in the industrial, automotive and communications markets. In the automotive electronics space, the semiconductor giant has also been a beneficiary of the growing consumer demand for more features in new vehicles and the shift to hybrid and electric vehicles. In fact, analysts expect the company to have generated automotive revenues of $205 million.

Driven by the wireless segment, the communications market may have also performed well. The trend towards 5G network expansion in the US and increased deployments in European are likely to have benefited this market.

There is widespread concern, however, regarding weakness in the consumer market and how this may have impacted Analog Devices revenue and earnings in the quarter to be reported.

The company has been making investments in innovation to remain ahead but is facing stiff competition from the likes of Texas Instruments and Maxim. To cut costs, Analog Devices has undertaken inventory reductions and restructuring initiatives, which included the closure of several facilities.

The company’s results are also expected to reflect the impact of macroeconomic and geopolitical headwinds.

What to watch: The market will watch the Nasdaq 100 and S&P 500, where Analog Devices is a major constituent. As the company is not a contender for beating expectations, investor focus is likely to be on management’s comments about current business conditions.

The Markets Today

     

Investors will be watching British stocks today, amid a rise in coronavirus cases, with hopes of the economic releases scheduled for today providing some relief to the markets.

Context: UK shares closed lower on Tuesday, following a decline in one of FTSE 100’s most important stocks, HSBC, and a higher pound.

Details: UK stocks weakened in Tuesday’s trading, as HSBC’s shares plummeted more than 6% after the bank announced plans to cut 35,000 jobs. The announcement follows HSBC’s massive 53% decline in profits last year.

Glencore’s shares also contributed to the wider market decline, with the stock trading lower by 4% after the company posted a loss for 2019. The heavyweight also reported the writing down of $2.8 billion in coal, oil and copper assets. Mining sector shares followed the weakness in Glencore’s stock, with Evraz and BHP Group shedding more than 3% each.

The UK released various economic reports yesterday, with some data pointing towards weakness in the economy. Although the jobless rate remained unchanged at 3.8% in the three months to December, wage growth increased at its slowest pace since the three months to August 2018. Labour productivity rose 0.3% in the last quarter of 2019, versus a 0.4% increase in the earlier period.

The rise in the British pound also weighed on the UK stock market, with the sterling recovering losses against the US dollar on Tuesday. The pound gained 0.3% versus the greenback to $1.3044. Britain’s stocks also responded to the general decline in global markets after Apple issued a revenue warning related to the coronavirus outbreak.

China announced a rise in coronavirus deaths on Tuesday, with 1,749 new cases and 136 more deaths reported on February 18.

Why it matters: After a weak performance in Tuesday’s session, all eyes are on the bunch of economic data scheduled for release today, including inflation rate, producer prices and retail prices. Investors will also keep a close eye on various economic reports from Europe and the US.

What to watch: UK consumer prices, which were flat in December, are likely to fall 0.4% month-over month in January. Preliminary estimates show a rise in the core inflation rate to 1.5% in January, from 1.4% in December. UK core producer prices are expected to rise 0.1% in January, after having fallen 0.1% in December. Analysts expect the retail price index to decline 0.6% in January, versus a 0.3% rise in December.

Other Markets: Most US indices closed lower on Tuesday, with the Dow and S&P 500 down 0.56% and 0.29%, respectively. The Nasdaq 100 defied the downward trend and edged higher by 0.02%.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

News shaping
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What else to watch today

     

South Africa’s inflation rate, Eurozone’s current account and construction output, Italy’s current account, Canada’s inflation rate and ECB non-monetary policy meeting. The US will report MBA's index of mortgage application activity, housing starts, producer price index and FOMC minutes as well as speeches from Federal Reserve Bank of Atlanta President Raphael Bostic, Federal Reserve Bank of Cleveland President Loretta Mester, Federal Reserve Bank of Minneapolis President Neel Kashkari, Federal Reserve Bank of Dallas President Robert Kaplan and Federal Reserve Bank of Richmond President Thomas Barkin.