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Earnings season can be a difficult time to trade for most investors. Many traders are searching for the quick 10 percent gain but more often than not, they are confronted with huge losses. Companies today are forecast to report better-than-expected earnings but also issue strong forward guidance to trigger positive price movement.
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That doesn't mean it is impossible to get the best of the proverbial earnings game. Three companies with a precedent of popping on results are scheduled to report earnings this Thursday. They include Smith & Wesson, Broadcom Limited and Ambarella. These stocks have both short-term catalysts and long-term potential that have propelled share prices in recent quarters.
Year-to-date stock performance
Smith & Wesson is the one of the largest manufacturers of firearms in the United States. Quarterly results have only recently started to reflect its industry lead. The company topped expectations last quarter by a wide margin, extending its streak of beats and positive comparisons to five quarters.
Firearms have thrived in the current environment, in which the sitting Democratic president advocates for gun control. Despite a Republican-held Congress that has yielded little ground, the call for stricter regulations has led to increased gun and ammunition sales with the fear that purchasing a firearm won't be as simple down the road.
This ongoing trend has propelled background checks in recent months to new heights. The FBI NCIS reported nearly 2.2 million firearm background checks in the month of July, a 37.5 percent increase from a year earlier and 3 percent month over month. It's likely the upward momentum in firearm background check will have a positive impact on Smith & Wesson's sales for the quarter.
Analysts at Estimize are calling for earnings per share of 56 cents, 78 percent higher than the same period last year. That estimate has shot up 28 percent since Smith & Wesson's most recent report in May. Revenue for the period is estimated up 36 percent to $199.48 million. Shares of the firearm provider are up 28 percent year to date and historically jump 2 percent following an earnings report.
The biggest concern for Smith & Wesson is whether sales growth is organic or circumstantial.
There are no doubts when it comes to Broadcom Limited, on the other hand. The semiconductor is nearly a year removed from the massive deal that united Avago Technologies and Broadcom Corp. The merger created one of the largest and most diverse chip companies in the market. It also added a new layer of earnings and revenue growth that continue to reward investors.
Investors expect Broadcom to maintain the upward momentum and extend its recent winning streak when it reports on Thursday.
Analysts are looking for earnings per share of $2.83 on $3.76 billion in revenue, according to the Estimize consensus data. Per shares estimates have jumped 9 percent since Broadcom's most recent report in June. Year over year this projects as a 26 percent increase on the bottom line and a resounding 115 percent on the top. Shares are up 21.5 percent since the start of 2016 and 40 percent from a year earlier. Historically the stock increases 4 percent immediately following a report and continues to make gains for the next 30 days.
Broadcom's extensive product portfolio and focus on multiple markets and geographies has helped drive earnings forward in recent months. The company's position in the market is only growing. A three-year agreement with Apple to supply the iPhone with RF components and modules could be a huge win if the iPhone 7 lives up to lofty expectations. Overall though, Broadcom can rely on its wireless segment to deliver sequential revenue growth over 20 percent due in large part to the smartphone market.
Ambarella has gone down a different path than Smith & Wesson and Broadcom Limited. The company has delivered decelerating growth on both the top and bottom line for over a year, but the market continues to react well to quarterly results.
Shares are up 29 percent year to date and historically have jumped 2 percent following earnings. This is a true anomaly for those following the stock, and a potential reward for those brave enough to buy it.
Ambarella is best known for producing the chips found in GoPro action cameras. GoPro is also Amabrella's biggest client and the primary source of its revenue. The well-publicized struggles of GoPro in recent quarters have continued to play a role in the chipmaker's sluggish sales numbers. However, GoPro's surprising recovery last quarter and the broadening strength in camera, drone and home security markets should help drive results this quarter and moving forward.
Analysts polled at Estimize are calling for earnings per share of 40 cents, down 54 percent from a year earlier. That estimate has dropped 22 percent since Amabrella's most recent report in June. Revenue is expected to contract by 24 percent to $64.23 million, marking a second consecutive quarter of negative growth.
Smith & Wesson, Broadcom and Ambarella have a history of favorable stock price movements even when earnings don't meet expectations. All signs point to positive results for these stocks heading into their afternoon reports on Thursday.
How do you think these names will report this week? Be included in the Estimize consensus by contributing your estimates here.