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Can Licensing Agreements Drive Rambus's (RMBS) Q3 Earnings?

Zacks Equity Research
Updated

Rambus Inc. RMBS is scheduled to report third-quarter 2017 results on Oct 23.

We believe licensing agreements, acquisition synergies, strategic deals and restructuring initiatives arelikelytodrive the company’s overall third-quarter results.

Last quarter, the company's adjusted earnings of 14 cents beat the Zacks Consensus Estimate by a penny. The company has an excellent earnings surprise history, with an average positive surprise of 6.9% in the trailing four quarters.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 17 cents, which is above the year-ago period figure of 16 cents. We note that the Zacks Consensus Estimate has remained nearly stable inthe past 30 days. Additionally, analysts polled by Zacks expect revenues of roughly $99 million, up 10% from the year-ago quarter.

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Factors to Influence Q3 Results

Rambus hassigned a patent licensing agreement with Taiwan-based company Winbond Electronics Corporation and hard disk drive (HDD) manufacturer, Western Digital Corp. WDC for an undisclosed sum.

Per the terms of the agreement, both the companies can use Rambus’ patented technology for five years. Rambus will receive royalty payments during the contract period. We believe this association will support Rambus’ fundamentals in the upcoming quarters.

Additionally, licensing agreements, the result of successful monetization of the company’s patents, remains a recurring source of revenue.

Going forward,Rambus recently inked a deal with eftpos, the Australian domestic debit network, to help users in Australia to secure transactions with Apple.

Furthermore, the companyhas acquired certain serial link assets of Semtech Corporation’s Snowbush IP and Smart Card Software. These deals and acquisitions will boost the company’s top and bottom-line performance in the to-be-reported quarter, in our view. Further, it will enhance its product offerings.

Let’s have a look at what our quantitative model predicts:

According to our quantitative model, it cannot be conclusively predicted if Rambus will be able to beat earnings estimates in the third quarter. This is because it does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

Zacks ESP: The Earnings ESP for Rambus is 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 17 cents.

Zacks Rank: Rambus carries a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Hence, the combination of Rambus's Zacks Rank #3 and Earnings ESP of 0.00% makes surprise prediction difficult.

Rambus, Inc. Price and EPS Surprise

Rambus, Inc. Price and EPS Surprise | Rambus, Inc. Quote

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

NVIDIA Corporation NVDA has an Earnings ESP of +1.06% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. AMAT has an Earnings ESP of +0.19% and a Zacks Rank #1.

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Western Digital Corporation (WDC) : Free Stock Analysis Report
 
Rambus, Inc. (RMBS) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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