...ending slightly higher on the day after falling initially. Several moving parts for the major averages this week, which include Greece debt settlement deadlines ($302B IMF debt repayment due by Greece Friday), the OPEC meeting, and Nonfarm payroll jobs data (also on Friday). Major averages recover after the S&P 500 posted its biggest weekly loss in the last 6 weeks. The dollar jumped following better manufacturing, construction spending data this morning (followed mixed PMI readings out of China and the EuroZone overnight). The better data also lifts bond yields (sending bonds lower).

...as the Dow Industrials trade back above 18,000 level (touched low 17,774.89 yesterday), the S&P 500 back above 2,100 (2,077.59 low yesterday), and Nasdaq back around 5,000 (4,921.55 low yesterday). The Nasdaq snapped its 4-dau losing streak as well today, led by good gains in Semiconductors (+2.8%) and Biotech (+2.7%).

Stocks rallied Friday, but still ended the week lower, after a heavy dose of mostly weaker economic data (GDP highlight disappointment), a Fed meeting (which kept door open that any meeting going forward would be a “live” meeting for interest rate hike possibility, and a busy week of corporate earnings (included more misses than makes in revs/guidance).

...but the tech heavy NASDAQ posts another record close after setting new levels yesterday, helped by earnings from giants MSFT, AMZN and GOOGL (while AAPL reports on Monday). S&P 500 index rises to new all-time closing highs (prior closing all-time high was 2,117.39 on March 2nd of this year).

Still no fear in the market as the VIX at new 2015 lows (12.16 low), and no volume to speak off in markets today…strange times with markets holding at all-time highs despite what has been a very lackluster earnings season so far (more than 40% complete)…there just remain no other place to park your money other than equities.

Summary

Broadcom has beaten EPS 6 times in a row and 9 out of the last 10 quarters.

Low short float is a good sign for an upcoming beat.

Positive analyst sentiment and recent upward revisions are both indicators of positive market sentiment.

Introduction

Broadcom Corporation (NASDAQ:BRCM) is a semiconductor solutions provider for wired and wireless communications. The company has had a huge year, outperforming its competitors with a 12-month price performance of 46%.

Source: Yahoo Finance

While these gains have led to a somewhat inflated valuation (earnings yield of 2.44%, sales yield of 31.57%, and price-book of 2.95), they also present an investment opportunity as a momentum stock. However, this article is about BRCM's outlook for the year, but rather an analysis of their upcoming earnings release, set for Tuesday, April 21st at approximately 4:05 p.m. EST.

Recent Earnings History

For upcoming earnings predictions, we focus on the company's recent earnings history relative to analyst estimates, as we've found through historical testing that stocks that consistently beat estimates are far more likely to continue to beat them in the future. Earnings are crucial to consider, as stocks see huge price swings depending on how the results compared to expectations. BRCM's earnings track record is shown below:

Broadcom has a pretty incredible track record, beating the Wall St. consensus estimates 6 times in a row. Last quarter's 8.57% earnings surprise marked their 9th beat in the last 10 quarters. Companies with this level of consistency are far more likely to continue to beat in upcoming quarters, especially if they show strong earnings growth. BRCM's YoY earnings growth of 85.37% is yet another strong indicator for an upcoming earnings beat.

The revenue side is less certain; but there are still some strong indicators of an upcoming revenue beat. While its revenue beat streak of 2 is not substantial on its own, it has helped to produce an impressive 8 beats in the last 10 quarters. The 1.22% revenue surprise that BRCM reported last quarter marked 3.83% YoY revenue growth. While this level of growth isn't enough to warrant exuberant confidence in the upcoming earnings call, it's also not enough to warrant pessimism.

All else equal, based on BRCM's recent earnings history we anticipate a very big (+7.5%) earnings beat and a big (2.5-7.5%) revenue beat over the Wall St. consensuses of $0.60 and $2.01B, respectively.

Other Indicators of an Upcoming Beat

We've also found through our backtests that a low short float (short interest as a percentage of total float) is also correlated to a higher probability for an upcoming earnings beat. Logically this makes sense, short sellers aren't going to short a stock if they're expecting good news. BRCM looks good from this perspective, with a short float of only 1.43%. We put this number into perspective below:

BRCM's short float of only 1.43% is less than half of the semiconductors group average of 3.41% and the IT sector average of 3.67%.

Another good sign for an upcoming beat is that analysts have recently made upward revisions to their estimates. Three months ago, the Zack's Consensus EPS estimate was $0.75. It has since been revised to $0.60. However, most recently, analysts at Zack's have increased their Most Accurate Estimate to $0.63. This recent, positive 3-cent estimate revision is a great sign going forward, especially when combined the positive analyst sentiment for the stock. All of the analysts covering BRCM at Zack's have a "strong buy" rating on the stock, and according to Analystratings.net, 25 of the 38 analysts covering the stock have a "buy" rating, with 12 "hold" and only one "sell." There's clearly a bullish analyst sentiment for the stock going forward.

What to Watch For

Unfortunately, stock prices don't always move up on the announcement of an earnings surprise. There are other factors that the market is looking for. Though we're very confident in a surprise, we're far less confident that the market will react positively. For instance, we feel that any beat less than 10 cents over the consensus may create a downward price reaction, because of the 15-cent revision from 3 months ago. We also anticipate a revenue beat, but should revenue miss the consensus $2.01B, even a 10-cent earnings beat may not be enough to propel the price upward.

One final thing to consider before earnings is BRCM's potential as a takeover target for Intel (NASDAQ:INTC). Since INTC dropped its bid to acquire Altera (NASDAQ:ALTR) on April 9th, BRCM has been seen as a potential acquisition alternative since it competes in several telecom/networking chip markets, and it complements Intel's offerings. The reported buyout price would have to be in the neighborhood of $49 to reflect a market cap of $30B, or 15% higher than its current cap.

Summary

Broadcom has beaten EPS 6 times in a row and 9 out of the last 10 quarters.

Low short float is a good sign for an upcoming beat.

Positive analyst sentiment and recent upward revisions are both indicators of positive market sentiment.

Introduction

Broadcom Corporation (NASDAQ:BRCM) is a semiconductor solutions provider for wired and wireless communications. The company has had a huge year, outperforming its competitors with a 12-month price performance of 46%.

Source: Yahoo Finance

While these gains have led to a somewhat inflated valuation (earnings yield of 2.44%, sales yield of 31.57%, and price-book of 2.95), they also present an investment opportunity as a momentum stock. This article, however, isn't about BRCM's outlook for the year; it is an analysis of their upcoming earnings release, set for Tuesday, April 21st at approximately 4:05 p.m. EST.

Recent Earnings History

For upcoming earnings predictions, we focus on the company's recent earnings history relative to analyst estimates, as we've found through historical testing that stocks that consistently beat estimates are far more likely to continue to beat them in the future. Earnings are crucial to consider, as stocks see huge price swings depending on how the results compared to expectations. BRCM's earnings track record is shown below:

Broadcom has a pretty incredible track record, beating the Wall St. consensus estimates 6 times in a row. Last quarter's 8.57% earnings surprise marked their 9th beat in the last 10 quarters. Companies with this level of consistency are far more likely to continue to beat in upcoming quarters, especially if they show strong earnings growth. BRCM's YoY earnings growth of 85.37% is yet another strong indicator for an upcoming earnings beat.

The revenue side is less certain; but there are still some strong indicators of an upcoming revenue beat. While its revenue beat streak of 2 is not substantial on its own, it has helped to produce an impressive 8 beats in the last 10 quarters. The 1.22% revenue surprise that BRCM reported last quarter marked 3.83% YoY revenue growth. While this level of growth isn't enough to warrant exuberant confidence in the upcoming earnings call, it's also not enough to warrant pessimism.

All else equal, based on BRCM's recent earnings history we anticipate a very big (+7.5%) earnings beat and a big (2.5-7.5%) revenue beat over the Wall St. consensuses of $0.60 and $2.01B, respectively.

Other Indicators of an Upcoming Beat

We've also found through our backtests that a low short float (short interest as a percentage of total float) is also correlated to a higher probability for an upcoming earnings beat. Logically this makes sense, short sellers aren't going to short a stock if they're expecting good news. BRCM looks good from this perspective, with a short float of only 1.43%. We put this number into perspective below:

BRCM's short float of only 1.43% is less than half of the semiconductors group average of 3.41% and the IT sector average of 3.67%.

Another good sign for an upcoming beat is that analysts have recently made upward revisions to their estimates. Three months ago, the Zack's Consensus EPS estimate was $0.75. It has since been revised to $0.60. However, most recently, analysts at Zack's have increased their Most Accurate Estimate to $0.63. This recent, positive 3-cent estimate revision is a great sign going forward, especially when combined the positive analyst sentiment for the stock. All of the analysts covering BRCM at Zack's have a "strong buy" rating on the stock, and according to Analystratings.net, 25 of the 38 analysts covering the stock have a "buy" rating, with 12 "hold" and only one "sell." There's clearly a bullish analyst sentiment for the stock going forward.

What to Watch For

Unfortunately, stock prices don't always move up on the announcement of an earnings surprise. There are other factors that the market is looking for. Though we're very confident in a surprise, we're far less confident that the market will react positively. For instance, we feel that any beat less than 10 cents over the consensus may create a downward price reaction, because of the 15-cent revision from 3 months ago. We also anticipate a revenue beat, but should revenue miss the consensus $2.01B, even a 10-cent earnings beat may not be enough to propel the price upward.

One final thing to consider before earnings is BRCM's potential as a takeover target for Intel (NASDAQ:INTC). Since INTC dropped its bid to acquire Altera (NASDAQ:ALTR) on April 9th, BRCM has been seen as a potential acquisition alternative since it competes in several telecom/networking chip markets, and it complements Intel's offerings. The reported buyout price would have to be in the neighborhood of $49 to reflect a market cap of $30B, or 15% higher than its current cap.

In its biggest potential acquisition in history, newsletter portfolio holding Intel is reportedly in talks to acquire Altera, though deal terms have yet to be disclosed. We think Intel could pay up to ~$40 per share for the company on the basis of the high end of our fair value estimate range for Altera and still generate value for shareholders, though we wouldn’t expect Altera’s $2 billion revenue stream to be much of a needle-mover against Intel’s $50+ billion revenue base, at least initially. However, there are a few reasons why this would be a strategic win for Intel.

Altera is one of the top standard cell ASIC (application-specific integrated circuit) suppliers in terms of revenue. Due to the rising cost of transistors, however, the ASIC and ASPP (application-specific standard product) models have come under pressure as of late. Altera’s response has been to position itself as one of the two largest manufacturers of field-programmable gate arrays, FPGAs, a sub-segment of programmable logic devices (PLDs) that have much better economics than either ASICs or ASPPs and are poised to displace legacy technologies, almost across the board (ASSP, ASIC, DSP, MCU, CPU, and GPU).

Image Source: Altera

By most estimates, the ASIC and ASSP replacement opportunity alone offers growth that’s twice as fast as the overall semiconductor industry, something Intel wants, and Altera brings to the table a complete FPGA portfolio (Generation 10), from the Max 10 (refresh CPLD/low-end) to the Arria 10 (mid-range markets), and the Stratix 10 on the high end. Altera estimates that the PLD (FPGA) market was nearly $5 billion in 2014, but the combined portion of the ASIC and ASSP markets that was accessible for PLD displacement was over $50 billion, revealing the tremendous growth potential of PLDs (FPGAs). Altera’s Stratix Series already cooperates with Intel 14nm Tri-Gate technology, offering customers double the performance gains in most cases. In a recent Intel presentation, the tech behemoth showcased the significant cost per transistor savings in its 14bnm TriGate technology. The new HyperFlex core fabric architecture results in a level of performance and power efficiency that is unmatched by any existing FPGA architecture, according to the firm.

We like Altera’s competitive position to win new business and its existing partnership with Intel, which should smooth deal integration. In fact, Altera’s management will tell you that its partnership with Intel has given it an upper hand in addressing performance, power consumption, and cost at the same time, while rivals have struggled with each sequentially. From what we can tell, this has given Altera has an early-mover advantage, even relative to its chief FPGA rival Xilinx, and the growing “process technology gap” for new designs between PLDs (FPGAs) and the ASIC alternative is revealing. Even if Altera doesn’t sustain such an advantage relative to technology-savvy peers, the benefits of FPGAs over ASICs should generate a market large enough for a number of players.

Image Source: Altera

If there’s one firm that knows the future of the semiconductor industry, it’s Intel. The move to acquire Altera is not based on a hunch. The executive suite at Intel knows the potential of FPGAs because it has been working closely with Altera for a few years now. Altera will create an “incumbency” advantage in this market relative to rivals (as it displaces older technology), and we think Intel has grand plans to capitalize on the growth potential. The cost of switching PLD vendors, for example, is incredibly high given the significant investment in design and prototyping, suggesting a long life-cycle, and Intel knows the value of a profitable recurring revenue stream. Cost savings by bringing Altera in-house will be material for Intel.

As for Altera on a standalone basis, the company’s economic returns have been great as of late, with the company’s operations registering a very attractive Economic Castle rating. From a financial standpoint, free cash flow is robust, and the company is targeting healthy gross (67%-70%) and operating (33%-34%) margins over the next several years. Altera’s cash flow from operations has expanded to ~$670 million at the end of 2014 from ~$590 million at the end of 2014 while capex has hovered around $40-$60 million. The firm’s total cash stood at ~$2.6 billion at the end of 2014, relative to total long-term debt of ~$1.5 billion. Altera’s strong financial health is exemplified by the fact that it has raised its dividend threefold since the end of 2008. The strong cash-flow generation and excess cash would help pad Intel’s dividend growth prospects.

The semiconductor industry continues to consolidate—NXP Semi bought Freescale recently—and we don’t think this will be the last deal that Intel inks should it be completed. Our $35 per share fair value estimate for Intel remains unchanged until further financial deal details come to light. We continue to hold Intel in the Best Ideas portfolio (here) and Dividend Growth portfolio (here). We expect to raise our fair value estimate for Altera in light of the tremendous interest in its product portfolio, which we had underestimated prior to the announcement of deal talks with Intel. Our fair value estimate of Xilinx remains unchanged.

...managing a small gain on very light volume, though the Nasdaq jumped late day on a WSJ report that INTC in talks to buy rival semi maker ALTR http://goo.gl/nEyDrP, lifting battered semi stocks. Equities have fallen the last few days after the latest bout of softer data pointed to a potential U.S. slowdown, slowing earnings in the S&P, and as Federal Reserve members continue to suggest a rate hike will occur this year (despite the bond/equity market telling us otherwise). 

Volatility continues in the currency, commodity (oil) and bond markets as well. Earlier this morning, data was in-line with forecasts, with GDP for quarter at 2.2%, but potentially more onerous, corporate profits fell in Q4 and posted the first annual decline since the middle of the last recession. European stocks finished higher Friday, but the region’s key benchmark saw its lengthy string of weekly wins come to an end; Germany’s DAX logs first weekly loss in 2 months.

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers.

Aetna, Ticker: $AET

Aetna, $AET,pulled back with the market, making a lower low and breaking below the 200 day SMA for the first time since November 2012. The recovery finds it back at resistance and consolidating. As it does, the RSI is in the bullish zone but looking a little tired and the MACD is leveling. A break higher could reignite the trend up.

Altera, Ticker: $ALTR

Altera, $ALTR, pulled back to the November 2013 lows with the market but has been on fire since. The stair step higher finds it consolidating over the SMA's and attempting a break higher Friday. Both the RSI and MACD support more upside.

Alliance Resource Partners, Ticker: $ARLP

Alliance Resource Partners, $ARLP, also did the 'V' thing with the market, quickly recovering to the prior high. A quick pullback and then move higher Friday is starting to look like an Inverse Head and Shoulders pattern, should it break the neckline at about 49. The RSI is bullish and turning back higher and the MACD is flat but positive.

McKesson, Ticker: $MCK

McKesson, $MCK, had a strong trend higher until it made the 'V'. Now it is recovering from a small pullback, and testing trend resistance after holding at 200. The RSI is in the bullish zone and rising with a MACD that averted a cross down and is rising now as well.

Valeant Pharmaceuticals, Ticker: $VRX

Valeant Pharmaceuticals, $VRX, came back from the October 'V' to prior resistance and a new higher high. Recently a mini-V sees it back at that high, and 6 month resistance. There is a complex Inverse (bashed in) Head and Shoulders at work as well. The RSI is rising and bullish while the MACD is about to cross up giving a bullish signal.

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, heading into the last full week before the Holiday season and November Options Expiration, sees the equity markets continuing to look better on the longer timeframe than on the daily. Elsewhere look for Gold to continue the bounce in its downtrend while Crude Oil heads lower. The US Dollar Index looks to continue to move sideways with a chance of a pullback while US Treasuries are level in their pullback. The Shanghai Composite may consolidate in the uptrend while Emerging Markets muddle along sideways with a slight upward bias. Volatility looks to remain subdued keeping the bias higher for the equity index ETF's SPY, IWM and QQQ. Their charts are not as firm in that regard though, with the IWM in consolidation mode short term and the SPY and QQQ stronger but also looking better in the longer timeframe. Use this information as you prepare for the coming week and trad'em well.

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