Why Microchip Tech (MCHP) Might be Well Poised for a Surge

Investors might want to bet on Microchip Technology (MCHP), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this chipmaker, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Microchip Technology, as there has been strong agreement among the covering analysts in raising estimates.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The company is expected to earn $0.41 per share for the current quarter, which represents a year-over-year change of +105.0%.

Over the last 30 days, six estimates have moved higher for Microchip Tech compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 9.61%.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $1.51 per share represents a change of +15.3% from the year-ago number.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, six estimates have moved up for Microchip Tech versus no negative revisions. This has pushed the consensus estimate 5.39% higher.

Favorable Zacks Rank

The promising estimate revisions have helped Microchip Tech earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Microchip Tech shares have added 12% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.

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This article originally published on Zacks Investment Research (zacks.com).

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