NVIDIA Q3 Earnings: Can NVDA Hit Its $1.57 EPS Target?

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NVIDIA is the inventor of the GPU, a specialized electronic circuit that creates graphics on laptops, workstations, mobile devices, notebooks, PCs, and more. More recently, the GPU has been central in powering deep learning / artificial intelligence (AI) applications like robots and self-driving cars.

NVIDIA hopes to leverage its first-mover advantage in the autonomous driving market and drive adoption of its Drive PX platform. While the company spends over $2.6 billion a year on research and development to support this effort, it faces stiff competition from other chipmakers that are also keen on capturing a share of the automotive market. There is certainly no guarantee that NVIDIA’s chips will end up dominating the market, but it is a bet the company has to make. The majority of the company’s sales are still reliant on the matured PC gaming industry. As shown in the chart below, the company’s revenues have been declining as of late as it continues to increase R&D spend.

JCP-Total-Revenues-RD-Expense

NVIDIA Corporation (NASDAQGS:NVDA) is scheduled to report Q3 earnings results on November 14, 2019 after close of trading. The company is expected to report earnings of $1.57/share on revenue of $2.901 billion. The consensus earnings per share (EPS) of $1.57/share is based on a poll of 27 analysts and represents a decline of -14.7% over the same quarter last year when the company reported earnings of $1.84/share.

The revenue forecast of $2.901 billion based on a poll of 32 analysts implies a year-over-year (YoY) decline of -8.8%. Last year the company reported $3.181 billion in revenue for the quarter.

Expected to report EPS decline of -$0.27/share for Q3, 2019
Metric Expected Prior Year YoY Change
Revenue $2,901.00 $3,181.00 -8.8%
EPS $1.57 $1.84 -14.7%

Earnings Call Trends

Historically, management has exceeded analyst expectations 7 out of the last 8 tracked quarters, and missed expectations 1 quarters.

What are your expectations from NVIDIA for this earnings this quarter? Let us know in the comments!

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $1.14 $1.24 8.8% Beat
Q1, 2020 $0.82 $0.88 7.3% Beat
Q4, 2019 $0.75 $0.80 6.7% Beat
Q3, 2019 $1.93 $1.84 -4.7% Missed
Q2, 2019 $1.84 $1.94 5.4% Beat
Q1, 2019 $1.66 $2.05 23.5% Beat
Q4, 2018 $1.31 $1.72 31.5% Beat
Q3, 2018 $1.07 $1.33 24.3% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending July 28, 2019, the stock price reacted by increasing by 6.3%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-15 $150.07 $159.56 6.3% Increase
2019-05-16 $159.58 $156.53 -1.9% Decline
2019-02-14 $152.88 $157.34 2.9% Increase
2018-11-15 $197.19 $164.43 -16.6% Decline

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of – the model suggests the company is a possible earnings manipulator. A value of – implies a – chance of earnings manipulation.

Fundamentals And Technical Analysis

NVIDIA is currently trading at $208.57/share, down -0.5% for the day. The company is trading at approximately 94.0% of its 52-week high of $222/share. The company’s stock price is up 39.0% since the last earnings report and up 1.0% over the previous week.

The company’s 14 Day Relative Price Index (RSI) of 71.04 suggests the company is trading in technically overbought territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a price-to-earnings (P/E) multiple of 46.5x and a forward P/E multiple of 38.5x. NVIDIA’s current share price also implies a price-to-book (P/B) multiple of 12.4x. The following table summarizes some other key fundamental ratios:

Data as of November 13, 2019
Metric Value
Last Fiscal Period FY2020.Q2
Period End Date July 28, 2019
Stock Price (Current) $208.57
P/E Ratio 46.5x
P/E Ratio (Fwd) 38.5x
PEG Ratio 1.2
Total Debt to Capital (%) 2.0%
Levered Free Cash Flow $2.447 billion
Enterprise Value / EBITDA 46.6x

Company Profile: NVIDIA Corporation

NVIDIA Corporation is a large-cap stock with a market capitalization of $127.7 billion and a total enterprise value of $121.7 billion. The company operates in the Information Technology sector and Semiconductors & Semiconductor Equipment industry.

NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor.

The GPU segment offers processors, which include GeForce for PC gaming and mainstream PCs; GeForce NOW for cloud-based game-streaming service; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for artificial intelligence (AI) utilizing deep learning, accelerated computing, and general purpose computing; GRID, which provides power of NVIDIA graphics through the cloud and datacenters; DGX for AI scientists, researchers, and developers; and cryptocurrency-specific graphics processing units.

The Tegra Processor segment provides processors that are primarily designed to enable branded platforms – DRIVE and SHIELD; DRIVE AGX automotive computers and software stacks, which offer self-driving capabilities; Clara AGX for intelligent medical instruments; SHIELD devices and services designed for mobile-cloud in home entertainment, AI, and gaming applications; and Jetson AGX, an AI computing platform for robotics and other embedded use.

The company’s products are used in gaming, professional visualization, datacenter, and automotive markets. NVIDIA Corporation sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, Internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants.

The company has an alliance with Red Hat, Inc.; a technology collaboration with Microsoft Corp.; and a collaboration with Ericsson. NVIDIA Corporation was founded in 1993 and is headquartered in Santa Clara, California.

Expertise: financial technology, analyzing market trends. Brian is a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian’s background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors. Brian can be reached at brian@finbox.io or at +1 (516) 778-6257.

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