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What’s in the Cards for Ambarella (AMBA) in Q3 Earnings?


Ambarella, Inc. AMBA is set to report third-quarter fiscal 2017 results on Dec 1. Last quarter, the company posted a positive earnings surprise of 56.25%. Notably, the stock has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive earnings surprise of 62.75%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Ambarella reported better-than-expected second-quarter fiscal 2017 results. Year-over-year comparisons were however unfavourable.

Ambarella develops chips for the high-definition (HD) video capture market and is currently witnessing increasing demand for its products.

Ambarella has started working with GoPro. The chipmaker’s technology is used in GoPro’s first person point-of-view cameras, allowing users to take videos from snowboards, surfboards, or car dashboards. The company has also partnered with Alphabet Inc. (GOOGL) for its “Helpouts” services. These services help users with a range of jobs from fixing their cars to taking art lessons, through a video camera connected to Wi-Fi or Bluetooth network.

The company had acquired VisLab S.r.l. in an all-cash deal worth $30 million. By integrating VisLab’s computer vision and intelligent control systems with its video processing technology, Ambarella will be able to develop high performance products and target its core markets — automotive, IP security, wearable and flying cameras.

Also, the VisLab takeover will boost Ambarella’s product portfolio and help it to compete with Israel-based Mobileye N.V. MBLY, currently the world’s leading provider of driver assistance technology.

However, the company has been criticized for the lack of innovation by short seller, Citron Research. According to Citron, the company faces severe commoditization risks and hence stiff competition.

AMBARELLA INC Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Ambarella will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 68 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Although Ambarella’ Zacks Rank #3 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a couple of stocks that you may consider, as our model shows that they have the right combination of elements to post an earnings beat:

Marvell Technology Group Ltd. MRVL, with an Earnings ESP of +8.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here

Broadcom Ltd. AVGO, with an Earnings ESP of +1.74% and a Zacks Rank #3

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