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Will Tessera Technologies (TSRA) Beat Earnings Estimates?

Zacks Equity Research

Tessera Technologies Inc. (TSRA) is set to report second-quarter fiscal 2014 results on Aug 4. Last quarter, it posted a 46.0% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Tessera Technologies’ first-quarter earnings of 71 cents exceeded the Zacks Consensus Estimate by 21 cents due to higher revenues. Revenues were up 56.7% sequentially and a massive 208.6% year over year. The increase in recurring revenues was driven by completion of several patent licensing deals including agreements with Samsung, Renaissance and licensing settlements with PTI and ASD. Moreover, the litigation settlement agreement with Qualcomm (QCOM) also drove recurring revenues.

FotoNation revenue also increased as a result of higher royalties from smartphone consumers.

The company is on the right track following its exit from DOC industrial operations. It has lowered its operating expenses, redirected investment to areas with growth potential and secured several patent licensing agreements. Several patent litigations have also been settled in its favor. Moreover, new licensing deals on the anvil will further increase its revenue and improve its profitability.

For the second quarter of 2014, Tessera expects revenues in the range of $31 million–$33 million. GAAP operating expenses are expected to be between $36 and $38 million. Management expects roughly $0.2 million of restructuring charges, amortization of intangibles of approximately $4.6 million, stock-based compensation expense of around $2.4 million and expenditure associated with discontinued operations of $1 million.

Earnings Whispers?

Our proven model does not conclusively show that Tessera Technologies will beat estimates 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: While the Zacks Consensus Estimate stands at a breakeven for the second quarter, the Most Accurate estimate is pegged at a penny, which translates into an Earnings ESP of 0.00%.

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

We caution against stocks with Zacks Ranks #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

Here are a few other companies that you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

  • First Solar, Inc. (FSLR), with Earnings ESP of +6.06% and a Zacks Rank #1 (Strong Buy)
  • Semiconductor Manufacturing International Corp. (SMI), with Earnings ESP of +33.33% and a Zacks Rank #1
  • Cognex Corporation (CGNX), with Earnings ESP of +12.00% and a Zacks Rank #1

Read the Full Research Report on TSRA
Read the Full Research Report on FSLR
Read the Full Research Report on CGNX
Read the Full Research Report on SMI
Read the Full Research Report on QCOM

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