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We expect Altera Corp. (ALTR - Analyst Report) to beat expectations when it reports second-quarter 2014 results on Jul 24.

Why a Likely Positive Surprise?

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

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (38 cents per share) and the Zacks Consensus Estimate (37 cents per share), stands at +2.70%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

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

The combination of Altera’ Zacks Rank #2 and +2.70% ESP makes us very confident in looking for a positive earnings beat.

What is Driving the Better-Than-Expected Earnings?

Altera is witnessing higher revenues from its FPGA offerings. FPGAs are widely used in third generation (3G) and fourth generation long-term evolution (4G LTE) network connections. A higher percentage of FPGAs per base station allows higher data bandwidth. We believe Altera is well equipped with FPGA product suites (Stratix, Arria and Cyclone) to gain share in the growing PLD market.

Altera’s transition to 14-nanometer (nm) FPGAs in association with Intel (INTC - Analyst Report) is likely to be a competitive differentiator. Intel will be making chips for Altera using its 14-nm trigate transistor technology.

Altera is currently manufacturing its chips using 28-nm processes. We believe that this will help Altera to strengthen its product portfolio and offer more comprehensive and high-value programmable solutions.

Moreover, the continued share buybacks are expected to support the company’s bottom line, going forward.

Altera has done well in the recent past, consistently beating our estimates. The positive trend is seen in the trailing four-quarter average surprise of 9.26%, which was greatly helped by the 15.63% surprise in the last-reported quarter.

Other Stocks to Consider

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

F5 Networks, Inc. (FFIV - Snapshot Report), with an Earnings ESP of +3.81% and a Zacks Rank #2.

Western Digital Corp (WDC - Analyst Report), with an Earnings ESP of +4.02% and a Zacks Rank #2.

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