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PDF Solutions Inc. is set to report second-quarter fiscal 2014 results on Jul 28. Last quarter, the company posted positive earnings surprise of 38.89%. Let us see how things are shaping up for this announcement.

Factors This Past Quarter

PDF reported better-than-expected first-quarter results. The company reported higher revenues in both the Design-to-Yield solutions and Gainshare segments, buoyed by higher customer engagement and increase in customer volumes and performance.

The increasing user engagement and multi-year contracts with customers are expected to remain growth catalysts in the next few quarters. Particularly so because the ongoing technology transitions in the semiconductor industry require the qualification and testing of processes, which increases demand for its software solutions and services. PDF’s customers include leading foundries like Globalfoundries and Samsung that are currently under great pressure to improve yields on their new processes. Therefore, it is likely to see sales momentum.

However, competition from ChipMOS TECHNOLOGIES (Bermuda) LTD and customer concentration remain the headwinds (top 10 customers contribute 94% of total revenue).

Earnings Whispers

Our proven model does not conclusively show that PDF Solutions is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for PDF Solutions is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 20 cents per share.

Zacks Rank: PDF Solutions’ Zacks Rank #3 (Hold) when combined with 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies, which are worth considering as our model shows that they have the right combination of these two elements:

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

Iron Mountain Inc. , with an Earnings ESP of +7.69% and a Zacks Rank #2.

Energizer Holdings Inc. , with an Earnings ESP of +1.29% and a Zacks Rank #3.

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