We expect Teradyne Inc. TER to beat expectations when it reports first-quarter 2017 results on Jan 26.
Notably, Teradyne's results surpassed the Zacks Consensus Estimate in the preceding four quarters. It has an average four-quarter positive surprise of 24.8%.
Also, in the last one year, shares of Teradyne outperformed the Zacks categorized Electronic Testing Equipment industry. While the industry rallied 38.5%, the stock gained 57.5%.
Why a Likely Positive Surprise?
Our proven model shows that Teradyne is likely to beat on earnings because it has the right combination of the two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.63%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Teradynecarries a Zacks Rank #2 (Buy).
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Teradyne’s favorable Zacks Rank and positive Earnings ESP makes us reasonably confident about an earnings beat.
What is Driving Better-Than-Expected Earnings?
Teradyne supplies automation equipment for test and industrial applications. The company focuses on the semiconductor test market, which generates the bulk of its revenues.
A recovery in the semiconductor business (processors, MCUs and power management), strong demand in its core test businesses and high-growth in the wireless test market are expected to drive better-than-expected first-quarter results.
Moreover, growing memory market exposure and strong product lineup will drive results. While the opportunity is relatively smaller than SoC test, increased complexities related to interface speeds in both NAND and DRAM devices are driving demand for testing devices. The company has been making steady gains in this market. Management intends the market share to increase this year on the back of strong demand in memory test, particularly with respect to new ramps.
Additionally, the popularity of its products, the Universal Robots acquisition and continuous design win momentum are expected to drive its results in the to-be reported quarter.
Stocks to Consider
You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:
MGIC Investment Corporation MTG, with an Earnings ESP of +8.33% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortive Corporation FTV with an Earnings ESP of +1.75% and a Zacks Rank #2.
Northrop Grumman Corporation NOC, with an Earnings ESP of +0.35% and a Zacks Rank #2.
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