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NVIDIA Corporation (NVDA) Q1 Earnings Preview: Some Graphic Concerns

 May 08, 2013 02:31 PM
 


(By Rich Bieglmeier) NVIDIA Corporation (NVDA) will host a conference call on Thursday, May 9, at 2 p.m. PT (5 p.m. ET) to discuss its financial results for the first quarter of fiscal year 2014, ending April 28, 2013. Ahead of the call, NVIDIA will provide written commentary on its first-quarter results at approximately 1:20 p.m. PT.

Wall Street anticipates that NVDA will earn $0.10 for the quarter. iStock expects the graphic chips maker to report earnings that will meet Wall Street's consensus number. The iEstimate is $0.10, too.

NVIDIA Corporation, a visual computing company, develops graphics chips for use in personal computers (PC), mobile devices, and supercomputers. The company operates through two segments, GPU and Tegra Processors.

[Related -NVIDIA Corporation (NVDA) Q3 Earnings Preview: Can We See Another Beat?]

In the last four quarters, the semiconductor company has topped Wall Street's consensus estimate three quarters in a row by 16.70%, 10%, and 35.70%, from the most recent. NVDA's shares retreated from the pre-announcement close to the post-announcement close despite surprising the street. However, the backpedalling was limited to -2.13% and -0.61%; so, no big deal.

NVIDIA shares closed higher, from close-to-close, eight of the last 17 quarters. The average gain was 5.32% with a max move of 9.84% in February 2011, and a minimum move of 1.73% in February 2012. That means nine of the 17 latest quarterly announcements were somewhat disappointed as the shares lost -0.61% to -13.79% (see table below).

[Related -Nvidia Corporation: Ramping Tegra 4 In 2H May Compress Current Gross Margins]

If we sneak over to the options pits, to see where speculators are placing their bets, we find bulls dominating bears like "Money" Mayweather. Today's volume for May call options outnumbers put options by nearly 10:1. That's one of the biggest discrepancies iStock has ever seen on the eve of EPS.  Open interest is less lopsided, but bulls still win two calls for every put.

Many investors view options as a contrarian indicator and with all the bets fully on green…

Coming into the announcement, iStock has concerns. According to the most recent 10-K, NVIDIA's revenues rose 7.06% in 2012 versus 2011, but total operating expenses grew at a faster 12.06%. Now, most of difference is due to research and development. So, we aren't as concerned with these numbers as we are with inventory and accounts receivables (ARs).

As sales moderated higher in 2012, ARs jumped by 35.14%, which could be an indication that NVDA's customers are struggling to move product and pay their bills in a timely manner. Inventory spiked by a worrisome 23.33%. We have to wonder if NVIDIA is creating more supply than demand, which could translate into lower margins: lower margins = smaller profits i.e. not good for the stock price.

Overall: Our 10-K review suggests that NVIDIA Corporation (NVDA) could have some downside risk to the consensus estimate and our iEstimate. If so, the company's post EPS history hints at red.


Pre-EPS ClosePost-EPS Open% ChangePost-EPS Close% Change
2/13/2013$12.37$12.20-1.37%$12.732.91%
11/8/2012$13.17$13.15-0.15%$12.89-2.13%
8/9/2012$14.71$15.102.65%$14.62-0.61%
5/11/2012$12.42$13.458.29%$13.216.36%
2/15/2012$16.17$15.06-6.86%$16.451.73%
11/10/2011$14.78$14.66-0.81%$14.62-1.08%
8/11/2011$13.41$14.8410.66%$12.88-3.95%
5/12/2011$20.50$19.20-6.34%$18.26-10.93%
2/16/2011$23.38$22.72-2.82%$25.689.84%
11/11/2010$12.61$13.093.81%$13.265.15%
8/12/2010$8.96$9.253.24%$9.394.80%
5/13/2010$14.65$13.66-6.76%$12.96-11.54%
2/17/2010$17.84$16.86-5.49%$16.67-6.56%
11/5/2009$12.27$13.046.28%$13.167.25%
8/6/2009$13.12$13.835.41%$13.714.50%
5/7/2009$10.73$10.50-2.14%$9.25-13.79%
2/10/2009$9.32$8.58-7.94%$8.15-12.55%
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