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Why Is Teradyne (TER) Down 7.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Teradyne (TER). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Teradyne due for a breakout? 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 catalysts.

Teradyne Surpasses Q2 Earnings & Revenue Estimates

Teradyne Inc. reported second-quarter 2019 earnings of 66 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure also increased 11.9% year over year.

Moreover, revenues of $564 million increased 7% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $538 million and came ahead of the guided range of $520-$550 million.

Approximately 67% of revenues came from semiconductor testing platforms, 13% 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. Semiconductor Test revenues were up 4% from the year-ago quarter. Continued growth in 5G infrastructure, networking and memory test spending aided revenue growth in the quarter.

Teradyne’s Industrial Automation segment recorded 20% year-over-year growth in the second quarter. The growth was driven by strength in Universal Robots and the addition of Mobile Industrial Robots.

Margins

Pro-forma gross margin was 57.4%, down 90 basis points (bps) from the prior-year quarter. The decrease was due to unfavorable product mix.

Total operating expenses (selling and administrative &engineering and development) of $190.2 million increased 8.9% year over year. Both selling & administrative, and engineering & development expenses — as a percentage of sales — increased from the year-ago quarter.

Operating margin came in at 23.8%, up 100 bps from the year-ago quarter.

Balance Sheet

At the end of the second quarter, Teradyne’s cash and cash equivalents were $495.1 million, higher than $483.7 million in the corresponding period of 2019.

During the quarter, the company repurchased $90.8 million of its common stock and paid $15.4 million as dividends.
Guidance

Management expects third-quarter 2019 revenues in the band of $540-$580 million. Non-GAAP earnings per share from continuing operations are likely to be in the range of 64-74 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 10.61% due to these changes.

VGM Scores

Currently, Teradyne has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 B. 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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