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Will KLA-Tencor (KLAC) Outperform Earnings?

Zacks Equity Research

KLA-Tencor Corporation (KLAC) is set to report third-quarter fiscal 2014 results on Apr 24. Last quarter, the company posted a 7.6% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

KLA’s second-quarter earnings of 85 cents exceeded the Zacks Consensus Estimate by 6 cents on higher revenues and impressive expense management. Revenues were up sequentially due to a strong demand environment. Also, gross margins expanded in the last quarter due to a favorable product mix, improved manufacturing and stronger volumes.

For the third quarter of fiscal 2014, KLA expects revenues in the range of $790–$850 million,orders of $700–$900 million and shipments of $720–$780 million. Non-GAAP EPS is expected in the range of $1.00–$1.20.

Earnings Whispers?

Our proven model does not conclusively show that KLA will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.10. Hence, the difference is 0.00%.

Zacks Rank: KLA’s Zacks Rank #3 (Hold), when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive earnings ESP and Zacks Rank #1, 2 or 3 such as:

Entergy Corp. (ETR), with Earnings ESP of +12.00% and a Zacks Rank #1 (Strong Buy).

Vertex Pharmaceuticals Inc. (VRTX), with Earnings ESP of +13.16% and a Zacks Rank #1.

Align Technology Inc. (ALGN), with Earnings ESP of +13.89% and a Zacks Rank #1.

Read the Full Research Report on KLAC
Read the Full Research Report on ALGN
Read the Full Research Report on VRTX
Read the Full Research Report on ETR

Zacks Investment Research