What's in Store for Teradyne (TER) This Earnings Season?

Teradyne Inc. TER is slated to report third-quarter 2020 results on Oct 20. In the last reported quarter, it delivered an earnings surprise of 27.9%.

The stock outperformed earnings estimates in all the trailing four quarters, with the average surprise being 16.4%.

Trend in Estimate Revision

For the third quarter, the Zacks Consensus Estimate for earnings has remained stable at $1.11 per share over the past 30 days. This indicates an increase of 44.2% from the year-ago reported figure.

The consensus mark for revenues is pegged at $786 million, implying an increase of 35% from the year-ago reported figure.

Teradyne, Inc. Price and EPS Surprise

Teradyne, Inc. Price and EPS Surprise

Teradyne, Inc. price-eps-surprise | Teradyne, Inc. Quote

Factors to Note

Teradyne’s test products remained strong throughout the third quarter.

The company’s semiconductor Test revenues are likely to have got a boost in third-quarter 2020 owing to persistent growth in 5G infrastructure, strengthening of mobility, strong networking and growing memory test spending. The Zacks Consensus Estimate for Semiconductor Test revenues is currently pegged at $550 million, indicating a 38.2% year-over-year increase.

Markedly, the Industrial Automation business saw a decline in the last reported quarter. The trend is expected to have continued in the to-be-reported quarter due to coronavirus-led manufacturing disruptions.

The Zacks Consensus Estimate for Industrial Automation revenues is currently pegged at $64 million, suggesting a 19% year-over-year decline.

Stronger-than-expected System on a Chip (SOC) test shipments driven by increased demand for mobility-related test capacity are expected to have aided revenue growth in the to-be-reported quarter.

Increasing complexity of processors and technologies, popularity of its products, growing demand for millimeter wave test capabilities — both in Semi Test and at LitePoint — and persistent design wins are expected to have driven Teradyne’s performance in the to-be-reported quarter.

However, weakness in a few end markets served by the company could have been a headwind during the quarter. Also, increasing headwinds due to the COVID-19 pandemic may impact the results for the quarter to be reported.

For the to-be-reported quarter, management expects total revenues in the range of $745-$805 million. Non-GAAP earnings per share from continuing operations are likely to be in the range of $1.01-$1.17.

Management provided an encouraging third-quarter guidance reflecting increased memory and storage test shipments, along with production ramps of new product design wins in SOC test.

The Zacks Consensus Estimate for third-quarter revenues and earnings per share is pegged at $785.96 million and $1.11 per share, respectively.

What Our Model Says

Our proven model does not conclusively predict an earnings beat for Teradyne this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Teradyne has a Zacks Rank #2.

Stocks to Consider

Here are a few stocks that you may want to consider, as our model shows that these have the right combination of elements to post a positive earnings surprise in the quarter to be reported.

TE Connectivity Ltd. TEL has an Earnings ESP of +3.37% and a Zacks Rank #2.

Netflix, Inc. NFLX has an Earnings ESP of +2.39% and holds a Zacks Rank of 3.

MSCI Inc. MSCI has an Earnings ESP of +0.83% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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