Q4 Preview: NVIDIA's (NVDA) Earnings Upside May Already Be Baked In?

NVIDIA Corporation (Nasdaq: NVDA) is trading higher today, ahead of the company's fourth quarter 2011 results, expected out after the market closes. Shares are up 2.9% today.

NVDA is expected to report EPS of $0.21 with revs of $894.55 million. Last quarter, the Santa Clara, CA-based techie posted EPS of $0.15 on revs of $843.9 million, slightly ahead of the consensus EPS of $0.14 and revs of $843.5 million. Looking back at Q410, NVDA produced EPS of $0.23 coupled with revenues of $982.5 million, both topping the consensus looking for EPS of $0.20 on revs of $957.2 million.

NVIDIA gained 93.7% through the quarter, to $23.32 at the end of January. Shares are down just 0.4% since then, and ended 2010 about 16.7% worse.

A simple valuation pegs NVIDIA with a forward P/E of 23.4x FY12 EPS estimates, compared to 12x for Advanced Micro Devices (NYSE: AMD) and 67.3x for ARM Holdings (Nasdaq: ARMH) (for FY11 estimates).

Data from Bloomberg has 11 analysts with a Buy on NVDA, 20 with a hold, and two suggesting to Sell. The analyst price target average is $22.60, with a high of $40 and low of $10. Shares have traded in a range of $26.17 - $8.65 over the last 52-weeks.

Summary

• Goldman Sachs is looking for EPS of $0.17 and revs of $886.8 million, lower than what the Street expects. The firm notes that the Tegra 2 could provide upside for Q411 results, and shares could trade higher with a solid Q112 outlook. however, they're cautious into the report, stating: "(1) we believe the Street may be over-estimating the magnitude of Tegra 2 revenues for 2011, (2) the market may be overly optimistic about Nvidia’s ability to enter the mainstream PC market within the next two years, and (3) we see valuation as increasing stretched with the stock now trading at 20.5X our new CY2011 EPS estimate and with the stock up 52% ytd." Continued improvement in core GPU business should continue. Goldman is looking for Q112 EPS of $0.21 on revs of $922.9 million, both ahead of the consensus.
  
  Goldman has a Neutral rating on the shares, with a price target of $17.
  
  
• Wedbush is looking for EPS of $0.29 on revs of $900 million. Wedbush is looking for a beat-and-raise by the company, but believe that this anticipation is already baked into the shares. The firm expects upside led by Tegra, the Intel (Nasdaq: INTC) cross-license, and GPU share gains. Gross margins should come in stronger on overall business strength.
  
  Looking ahead, Webush expects Q112 revenue outlook in the low- to mid-single digit range from Q411. Wedbush also believes that Tegra is priced-in to the stock. The firm expects that NVIDIA will outline further detail on the cross-licensing agreement with Intel.
  
  Wedbush has a Neutral rating on the shares, with a price target of $21.
  
  
• Deutsche Bank is looking for EPS of $0.28 and revs of $870 million. They believe that Street estimates do not include the $100 million Intel cross-licensing payment. An R&D tax credit should provide EPS upside to both the firm and the Street's views.
  
  Looking at FY12, DB is modeling for revs of $860 million and GAAP EPS of $0.16, shy of Street views. DB comments: "We expect upside to our revenue & EPS estimate due to ramps of Tegra and modestly better GM due to better product mix (higher royalty & Tegra, less Chipsets)."
  
  Deutsche has a Hold on the shares, with an $18 price target.

Investors may be hoping that NVIDIA takes a page from QUALCOMM's (Nasdaq: QCOM) playbook, which saw the chipmaker handily top first quarter results. Additionally, guidance from QCOM was solid, and shares are currently 12.5% ahead following the January 26th report.

However, many are questioning the surge in stock price following the 51% rally since the end of the quarter, as investors and traders cheered the introduction of Tegra 2 at CES in January. Some believe that stiff competition is ahead from QCOM and Texas Instruments (NYSE: TXN), who are expected to put up a fight with revamped Snapdragon and OMAP chips, respectively.

NVIDIA Corp. is expected to release their Q411 earnings on Wednesday, February 16, 2011, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.

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