Cypress Semiconductor (CY) Earnings Preview/ Profit Alert (STM)

12:05pm (EST)

Cypress Semiconductor (CY) will announce earnings on Thursday, after the closing bell, and shares could be in store for a major move on the news. Wall Street will be looking for a profit of $0.11 a share on revenue north of $511 million.

The company has topped estimates in three of the past four quarters by a penny while matching estimates in the other. While I would like to see more than a penny beat, the high estimate is pegged at 12 cents with the low estimate at 11 cents. In other words, a match or a penny is nearly a given, according to the suit-and-ties, but a 2-cent beat might be a stretch.

This means another revenue beat might be needed to get more analysts to upgrade the stock and their price targets. In February shares jumped from $11.85 to close at $12.91 following a nearly $5 million revenue beat. Last October, Cypress also beat revenue estimates by roughly $5 million but shares closed lower by 15 cents to $10.11 the following session.

Last July 2016, sales came in $1 million over forecasts and when the company matched estimates for a profit of 12 cents. Shares closed at $11.68 going into the announcement but fell 4 cents the following session after peaking at $12.36. The stock tested a low of $10.57 by mid-August.

And finally, in the year ago period, or late April 2016, revenue topped estimates by $400,000. Shares fell a penny to close at $9.03 and rallied past $10 a month later.

Analysts have also been bullish in recent months over the stock.

Earlier this month, SunTrust upgraded shares to Buy from Hold with a $17 price target. In late March, two bullish Price Targets upgrades on the same day came from Needham and Pacific Crest. Needman upped its Price Target from $14 to $18 while Pacific Crest nearly copied with its upgrade from $14 to $17.

I have traded Cypress Semiconductor (CY) a number of times over the past few years and have been bullish on the stock since the single-digits. While I’m hopeful shares rally past $15 on the news, I also understand there is risk to $13.50 and the 50-day moving average, or worse, on an earnings or revenue miss.

Our current trade on CY was more on a technical setup but my fundamental research over the years has also been bullish. The company could see a huge jump in earnings in the coming quarter on the launch of the iPhone 8 and have recently raised prices on some of their chips. This might help with another revenue beat depending on how much increase they captured in the quarter.

I also went with CY June options to give the trade nearly two months to play out. This would lessen the blow of an earnings miss and realize the trade could take a substantial hit, if so. There has also been takeover chatter and a rebuffed offer of $15 a share in the past year. This should keep interest high in the stock and might renew chatter on a pullback.

Earnings trades are tricky and while I like them for their risk/ reward potential, I do try to limit my exposure to my portfolio with them. There are too many factors that have to go right and any curveball from management usually spells trouble. With CY, they have a proven on top and bottom line beats and the management team seems solid.

Turning our focus to the market, the bulls are trying to keep their very strong momentum going and have done well maintaining a steady pace with fresh record highs in play.

The Dow is gaining 38 points to 21,034 while the S&P 500 is adding 3 points to 2,391. The Nasdaq is slipping a half-point to 6,025 and the Russell 2000 is surging 10 points to 1,421.

I have updated our current trades, including a Profit Alert for STM, so let’s go check the tape.