All Eyes on Nvidia (NVDA) FQ1 Earnings Turnout Tonight

In a neutral earnings preview, Deutsche Bank's Ross Seymore points to 7% downside potential for NVDA stock, but anticipates strength in FQ1 results.

Top analyst Ross Seymore at Deutsche Bank may be approaching NVIDIA Corporation (NASDAQ:NVDA) with apprehension, but he tells investors to anticipate a good financial fiscal showcase tonight. NVDA is primed for yet “another solid” quarterly earnings show as well as guide, bets Seymore. In fact, the analyst boosts Gaming revenue expectations thanks to Nintendo gains.

Ahead of the print, the analyst reiterates a Hold rating on NVDA stock while raising the price target from $230 to $240 on back of a jump in EPS expectations. That said, the analyst notes, “we view the shares as fully valued,” and his 12-month target expectations point to a 7% downside from current levels.

For the first fiscal quarter of 2019, the analyst angles for dipping margin implications and rising operating expenses to jump 29% year-over-year in fiscal 2019 to be offset by weaker taxes, which look to be 12% compared to the fourth fiscal quarter call of 2018. Seymore anticipates NVDA will see a 2% quarter-over-quarter dip in revenues of $2.96 billion to outperform the Street’s expectations as well as guidance at the mid-point of roughly $2.9 billion, attributed to strength in Gaming and Datacenter revenues.

“We note that NVDA has reported revenues above the mid-pt of guidance for the past eleven consecutive quarters, beating the mid-pt on average by +9.5%. By end market, we currently model F1Q Gaming revs down -3% q/q (49% of sales), with crypto revs within both Gaming and OEM/Other flat q/q at $300m and $63m respectively. We highlight the significant variance in the moving parts within Gaming (core gaming, crypto, Nintendo), as we expect core Gaming revs in F1Q to benefit from channel fill (+$150-200m q/q), and note the potential for better crypto revs (vs. DBe flat q/ q) given AMD’s crypto-related revs which we estimate increased +17% q/q in C1Q18, with both of these offsetting the seasonal drop in GPU and game console (Nintendo) demand. We expect continued strength in Datacenter, with DC revs up +20% q/q (25% of sales), Provisualization revs down -2% q/q (8% of sales), and Auto revs up +5% q/q (5% of sales),” writes Seymore.

Additionally, the analyst anticipates the GAAP gross margin will hit 62.7%, aligning with guidance at the midpoint and GAAP opex to reach a $42 million quarter-over-quarter rise to $770 million aligning with the guide. Now revising his tax rate to 12% to be in accordance with the guide, a rate before the analyst expected to be 17.5%, this translates to a GAAP EPS of $1.53, compared to the Street’s $1.45 estimate and the analyst’s prior expectations of $1.44.

For the second fiscal quarter of 2019, Seymore takes his revenue estimate from $2.87 up to $2.93 billion, aligning with the Street’s revenue expectations of $2.94 billion on back of stronger Gaming revenue from a rise in Nintendo units. Yet, the analyst expects Gaming revenues to slip 6% quarter-over-quarter, which takes a 54% slice of NVDA’s total sales. Whereas Seymore once called for $786 million, he now looks for GAAP operating expenses to reach $803 million on back of a rise in revenues. The analyst dials down his tax rate forecast from 17.5% to 12%, aligning with the fiscal 2019 guide, which translates to a new forecast of $1.45 in GAAP EPS compared to his previous estimate of $1.36, one cent under the Street’s expectations.

Glancing ahead to the rest of fiscal 2019, the analyst adjusts his revenue projection from $12.45 to $12.55 billion, signifying a 29% year-over-year lift, and adjusts gross margin from 62.3% to 62.1% on mix. In terms of GAAP operating expenses, where the analyst once anticipated $3.24 billion, he now sets expectations for a 28% year-over-year rise to $3.34 billion, marking a 28% year-over-year rise on better revenues and sustained investment. The analyst raises his GAAP EPS estimate from $6.00 to $6.30.

Ross Seymore has a very good TipRanks score with an 82% success rate and an impressive ranking of #25 out of 4,793 analysts. Seymore garners 28.3% in his annual returns. When recommending NVDA, Seymore earns 0.0% in average profits on the stock.

TipRanks indicates optimism circling NVDA shares. Out of 19 analysts polled in the last 3 months, 14 are bullish on the chip giant, 4 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 6%, the stock’s consensus target price stands at $274.29.

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