Earnings Preview: Nvidia Corp Reports Results Friday

NEW YORK ( TheStreet) -- Nvidia ( NVDA) will be releasing last fiscal quarter's results before the opening bell Friday.

Who they are:
Nvidia provides graphics chips for use in smartphones, personal computers, tablets and professional workstations markets worldwide. Nvidia trades an average of 12.7 million shares per day and has a market cap of $7.7 Billion.
Nvidia competes with Intel, AMD and QualComm in providing graphics chips for use in smartphones, personal computers, tablets and professional workstations markets worldwide.

Book Value: $6.77
Float Short: 2.62%

What to expect:
On average, 28 analysts are expecting a drop of 9 cents in earnings per share compared with last quarter's results of 19 cents, and a drop of 17 cents from the same period last year. The estimated mean earnings are 10 cents per share, dropping over 50% from the same period last year.

For the last analyst update, a low of 0.08 cents and a high of 15 cents per share is what Wall Street is anticipating.

Analysts are also expecting a drop in revenue. The mean estimate for revenue is $915.7 million, down about 5% from the same period last year.

Recent stock and valuation performance:
From a month ago, the stock has decreased in price -13.64%, and changing from last year at this time -35.46%. When comparing with the S&P 500, the year to date difference is -17.38%. Like many in the tech industry, Nvidia has not fared well and is just slightly above the lows set in October.

Nvidia's main competitors are Intel ( INTC), Advanced Micro Devices ( AMD) and QualComm ( QCOM). Intel has performed great and with a beat of 3 cents above analyst estimates of 50 cents, to take home 53 cents for the quarter. Intel does compete with Nvidia, but Intel is also more than 17 times larger, so the comparison is diluted. Even so, a rising tide lifts all boats, and more dollars flowing into tech is good for Nvidia as well. AMD, like Intel, makes many products, and although AMD competes in the video card space, is a closer match to Intel than Nvidia.

AMD beat the estimate by 3 cents, but as a percentage AMD's beat is more impressive. AMD reported bottom line earnings of 12 cents versus estimates of 9 cents. Despite the results, the chart looks ho-hum and similar to Nvidia's chart.

In the past four quarters, Nvidia met estimates twice and beat twice. For the same period last year the beat was significant, with Nvidia reporting 27 cents when 19 was expected. Five quarters ago -- in the first quarter of 2011 -- the company missed with 23 cents in earnings versus 29 cents expected.

The short interest is relatively low at 2.62%. When reviewing the chart, the short interest is especially low. All the technical moving averages are trending lower, which usually acts like a magnet drawing-in trend following short sellers. PC makers Del ( DELL) and Hewlett-Parkard ( HPQ) charts look miserable too. I am having trouble justifying a long position in front of what could be a tough earnings day for Nvidia's shareholders.

In the past four quarters the top line revenues are stagnant, providing reason why the share prices are largely moving in a sideways-down direction. With an expected drop in top and bottom lines, don't expect a big buildup into the report.

One possible trade I do see looking interesting is a bull credit spread. With the implied volatility as high as it is going into earnings there is an interesting setup: By selling the May weekly $12 strike put for 33 cents and hedging it with a purchase of the $11 strike price put for 9 cents, a premium collection of 24 cents can be gained. As long as Nvidia closes Friday at or above $12 the full 24 cents is profit. If Nvidia crashes, the $11 strike price put hedge halts the loss to no more than 76 cents. The opposite may be done with calls if you believe Nvidia will continue to trade lower.

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