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Rambus (RMBS) Q1 Earnings: Will it Pull Off a Surprise?

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Rambus Inc. (RMBS - Free Report) is set to report first-quarter 2017 results on Apr 24. Last quarter, the company posted in-line earnings. Notably, Rambus outperformed the Zacks Consensus Estimate in three of the trailing four quarters with an average positive earnings surprise of 15.6%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Rambus reported modest fourth-quarter results, wherein the bottom line matched the Zacks Consensus Estimate and the top line surpassed the same. Quarterly revenues increased from the year-ago period.

Rambus is well poised to capitalize on the rising popularity of energy-efficient lighting, and LED products in the latest architectural, retail, commercial and residential lighting fixtures.

Notably, Rambus is going through a restructuring phase and we expect it to yield favourable results. Recently, Rambus signed a patent licensing agreement with hard disk drive (HDD) manufacturer Western Digital Corp. (WDC - Free Report) for an undisclosed sum. Per the terms of the agreement, Western Digital can use Rambus’ patented technology for its memory products for five years.

Licensing agreements are a recurring revenue source for Rambus, the result of successful monetizing of its patents. Rambus’ patented technologies are of great importance to chipmakers for manufacturing advanced chips used in computers and electronic goods.

Moreover, the synergies from acquisitions (Semtech Corporation’s Snowbush IP and Smart Card Software) will enhance its product offerings, thereby boosting its top and bottom line performance, in our view.

However, competition from Semiconductor Manufacturing International Corp. and Advanced Micro Devices and customer concentration remain headwinds for the company.

Rambus, Inc. Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Rambus will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 11 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Rambus carries a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Seagate Technology PLC (STX - Free Report) , with an Earnings ESP of +3.77% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMETEK Inc. (AME - Free Report) , with an Earnings ESP of +1.79% and a Zacks Rank #3.

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