Why Is Teradyne (TER) Down 10.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Teradyne (TER). Shares have lost about 10.9% 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 Q4 Earnings & Revenue Estimates

Teradyne Inc. reported fourth-quarter 2019 earnings of 88 cents per share, surpassing the Zacks Consensus Estimate by 9 cents. The figure also increased 39.7% year over year.

Moreover, revenues of $654.7 million increased 26% year over year. Also, the figure surpassed the Zacks Consensus Estimate by 6.4% and came ahead of the guided range of $590-$630 million.

Inside the Headlines

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.

The increase in total revenues was driven by higher-than-expected memory and wireless test demand. Continued growth in 5G infrastructure test spending, smartphone complexity growth and share gains in the memory test market aided revenue growth in the quarter.

Also, the Teradyne’s Industrial Automation segment witnessed growth in the fourth quarter, partially offset by manufacturing sector headwinds in the United States and Europe.

Margins

Pro-forma gross margin was 58.5%, down 110 basis points (bps) from the prior-year quarter. The decrease was due to favorable product mix.

Total operating expenses (selling and administrative &engineering and development) of $203.9 million increased 16.3% year over year. As a percentage of sales, both selling & administrative expenses and engineering & development costs decreased from the year-ago quarter.

Operating margin came in at 26.2%, up 460 bps from the year-ago quarter.

Balance Sheet

At the end of the fourth quarter, Teradyne’s cash and cash equivalents were $773.9 million, higher than $593.9 million in the prior quarter.

During the quarter, the company repurchased $131.2 million of its common stock and paid $15 million as dividends.

Guidance

Management expects first-quarter 2020 revenues in the band of $670-$710 million. Non-GAAP earnings per share from continuing operations are likely to be in the range of 86-96 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 46.61% due to these changes.

VGM Scores

At this time, 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 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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