Nvidia Poised for a Strong Earnings Release

NEW YORK ( TheStreet) -- Nvidia ( NVDA) is expected to give a repeat performance of last year in this year's first-quarter earnings after the market closes on Thursday.

NVDA Chart NVDA data by YCharts
Nvidia designs, develops and markets 3D graphics processors, graphics processing units and related software.

52-Week Range: $11.15 to $15.22

Price To Book: 1.8

The consensus earnings estimate is currently 10 cents a share, the same as first quarter last year. The lowest analyst estimate this report is 8 cents per share, and the highest is 14 cents.

Analyst opinion is mixed. Most of the analysts surveyed don't believe a buy or a sell should be made at this point. As I write this, Nvidia has nine buy recommendations out of 32 analysts covering the company, 21 holds, and two recommend selling. In the last 12 months, the shares have modestly moved higher.

NVDA Gross Profit Margin TTM Chart NVDA Gross Profit Margin TTM data by YCharts
Intel ( INTC), AMD ( AMD), and Qualcomm ( QCOM) are Nvidia's largest competitors in the chip space. Only Nvidia and Intel have managed to expand gross margins in the last four years.

After Intel reported earnings, the shares climbed remarkably. I expect the same from Nvidia, regardless of the number the company puts up. An upside earnings surprise will be great, but don't expect it. The smart money will focus on guidance, so pay attention to the forward-looking numbers and the conference call, and don't get overly attached to the earnings per share number.

Intel is expected to release its latest new microarchitecture platform this summer. The question to ask is if the next advancement by Intel will be the key to Intel increasing market share at Nvidia's expense. Phones, tablets and other devices smaller than PCs are increasingly powered by graphics chips. As a result, Nvidia isn't far from reaching the billion-dollar, free-cash-flow club, and I think that's the next stop.

I like Qualcomm, and share declines are more of a buying opportunity than a cause for worry. Dollar for dollar, Qualcomm appears more attractive to me than AMD, the shares of which are expensive relative to the company's performance, especially so after the recent bounce off the bottom.

NVDA Free Cash Flow TTM Chart NVDA Free Cash Flow TTM data by YCharts

Technically, there isn't much not to like on Nvidia's chart. All the important widely followed moving averages are trending higher, and the shares are near the highs for 2013. The one year return is 10%, and if the earnings numbers are well received by investors, Nvidia is set to break out above the 52-week high of $15.22. The shares are also closing in on $14.27, the analyst average price target.

Nvidia becomes even more attractive after considering the 30 cents a year in dividends shareholders are receiving. The yield is about 2.2%.

Short interest above 5% is not enough to sound the alarms, but above 6%, it increases my hesitation for allocating capital in the company. Short-sellers are among the brightest and most informed market participants, and if they turn sour on a company, you can bet it's for a good reason.

If the short interest ascends above 6%, you may wish to investigate why short-sellers believe the shares will move lower. Otherwise, the prevailing 5.2% of the float short isn't low or high but right on the fence for concern.

Option premium is sky high as expected for a tech company in front of earnings. If you're not sure you want the full exposure of Thursday's earnings and you own shares, you can sell covered calls to hedge. Selling covered calls will not provide full cover like buying put options can, but you get to earn instead of pay for time premium if you sell covered calls.

NVDA Revenue Quarterly Chart NVDA Revenue Quarterly data by YCharts

At the time of publication, the author had no positions in stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.