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Why Is Teradyne (TER) Up 5.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Teradyne (TER). Shares have added about 5.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Teradyne due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Teradyne Surpasses Q3 Earnings & Revenue Estimates

Teradyne Inc. reported third-quarter 2019 earnings of 77 cents per share, surpassing the Zacks Consensus Estimate by 7 cents. The figure also increased 8.5% year over year.

Moreover, revenues of $582 million increased 2% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $567.9 million and came ahead of the guided range of $540-$580 million.

Approximately 68% of revenues came from semiconductor testing platforms, 12% from Industrial Automation, 13% from the System Test business and the remaining 7% from the Wireless Test business.

Inside the Headlines

The increase in total revenues was driven by escalating demand for the System Test business. Continued growth in 5G infrastructure and flash memory test spending aided revenue growth in the quarter. Moreover, memory test shipments grew 23% sequentially on strong Flash demand.

Teradyne’s Industrial Automation segment recorded 4% year-over-year growth in the third quarter. The growth was driven by strength in Universal Robots and improvement in mobile robot demand at MiR. However, overall demand was lower than expected due to weakness in the manufacturing sector in the United States and Europe.

Margins

Pro-forma gross margin was 59.3%, up 40 basis points (bps) from the prior-year quarter. The increase was due to favorable product mix.

Total operating expenses (selling and administrative &engineering and development) of $187 million increased 5.5% year over year. As a percentage of sales, selling & administrative expenses increased, while engineering & development costs decreased from the year-ago quarter.

Operating margin came in at 26.6%, up 130 bps from the year-ago quarter.

Balance Sheet

At the end of the third quarter, Teradyne’s cash and cash equivalents were $593.9 million, higher than $495.1 million in the corresponding period of 2018.

During the quarter, the company repurchased $121.6 million of its common stock and paid $15.3 million as dividends.

Guidance

Management expects fourth-quarter 2019 revenues in the band of $590-$630 million. Non-GAAP earnings per share from continuing operations are likely to be in the range of 73-84 cents.

For the full year of 2019, management expects sales to grow nearly 7% year over year to more than $2.2 billion. Non-GAAP earnings per share are also expected to grow 16% from the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 29.51% due to these changes.

VGM Scores

Currently, Teradyne has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Teradyne has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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