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We expect semiconductor company Teradyne Inc. (TER - Analyst Report) to beat expectations when it reports second quarter 2013 results on Jul 24.

Why a Likely Positive Surprise?

Our proven model shows that Teradyne is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The expected surprise prediction or ESP (Read:Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +12.12%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Note that stocks with a Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings estimates. The sell-rated stocks (Zacks Rank #4 and #5) should never be considered going into an earnings announcement. 

The combination of Teradyne’s Zacks Rank #3 (Hold) and an ESP of+12.12% makes us reasonably confident in looking for a positive earnings beat on Jul 24.

What is Driving the Better than Expected Earnings?

Teradyne’snew products, lean cost structure and strong execution are expected to lead to a positive earnings surprise in the upcoming quarter. Also, the company saw some progress around its bookings in the last quarter, which indicates that revenues will pick up soon.

The LitePoint business has greatly helped the company to generate revenues from markets such as smartphones and tablets that witness much stronger growth than the company’s traditional markets. It has also improved Teradyne’s future growth prospects due to the significant opportunities unfolding in the high-growth wireless market.

Teradyne provided a modest outlook for the second quarter, with revenues forecast to increase in the range of $260 million to $280 million (up 9.1% sequentially). The positive trend is seen in the trailing four-quarter average surprise of 212.64%.

Other Stocks to Consider

Teradyne is not the only firm looking up this earnings season. We also see likely earnings beats coming from these companies:

  • Syntel Inc. (SYNT - Snapshot Report), with an ESP of +0.82% and a Zacks Rank #1 (Strong Buy)
  • InvenSense Inc. (INVN - Snapshot Report), Earnings ESP of +8.33% and a Zacks Rank #2 (Buy)
  • Scientific Games Corp. (SGMS - Analyst Report), with an ESP of +100.0% and a Zacks Rank #3 (Hold)

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