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Surging Earnings Estimates Signal Upside for Microchip Tech (MCHP) Stock

Microchip Tech (MCHP) shares have started gaining and might continue moving higher in the near term, as indicated by solid earnings estimate revisions...

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This story originally appeared on Zacks

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.

- Zacks

Analysts' growing optimism on the earnings prospects of this chipmaker is driving estimates higher, which 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.

For Microchip Tech, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

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

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $2.11 per share, which is a change of +35.26% from the year-ago reported number.

Over the last 30 days, the Zacks Consensus Estimate for Microchip Tech has increased 6.29% because eight estimates have moved higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $8.46 per share, representing a year-over-year change of +28.38%.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, 10 estimates have moved up for Microchip Tech versus no negative revisions. This has pushed the consensus estimate 7.12% higher.

Favorable Zacks Rank

Thanks to promising estimate revisions, Microchip Tech currently carries 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

Investors have been betting on Microchip Tech because of its solid estimate revisions, as evident from the stock's 9.8% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.



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