A month has gone by since the last earnings report for Teradyne (TER Quick QuoteTER - Free Report) . Shares have added about 13.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Teradyne due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Teradyne Q3 Earnings & Revenues Surpass Estimates

Teradyne Inc. reported third-quarter 2020 earnings of $1.18 per share, which surpassed the Zacks Consensus Estimate of $1.11. The figure increased 53.2% year over year but decreased 11.3% sequentially.

Revenues of $819.5 million increased 40.8% year over year. The figure also surpassed the Zacks Consensus Estimate by 4.3%.

Inside the Headlines

Approximately 72% of revenues came from semiconductor testing platforms, 15% from the System Test business, 8% from Industrial Automation and the remaining 5% from the Wireless Test business.

The increase in total revenues was driven by strong test revenues, which grew 46% year over year on Memory and Storage test shipments. Also, stronger-than-expected System on a Chip test shipments — driven by increased demand for mobility-related test capacity — aided revenue growth.

Teradyne’s Industrial Automation revenues were up 17% sequentially but flat with the year-ago quarter on improving global manufacturing conditions and new products.

Margins

Pro-forma gross margin was 56%, down 330 basis points (bps) from the prior-year quarter. The decrease was due to an unfavorable product mix.

Total operating expenses (selling and administrative & engineering and development) of $210.7 million increased 12.7% 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 30.3%, up 280 bps from the year-ago quarter.

Balance Sheet

At third quarter-end, Teradyne’s cash and cash equivalents (including marketable securities) were $1.23 billion, higher than $958.1 million in the prior quarter.

Net cash provided by operating activities was $342.5 million for the third quarter versus $225.8 million in the prior quarter.

During the quarter, the company paid $16.6 million as dividends.

Guidance

Management expects fourth-quarter 2020 revenues in the band of $680-$740 million. Non-GAAP earnings per share from continuing operations are likely to be in the range of $0.90-$1.06.

Management provided encouraging fourth-quarter guidance, reflecting strength in the company’s test businesses.

For full-year 2020, management expects sales to grow more than 33% on a year-over-year basis to $3.0 billion. GAAP earnings per share are expected to be $4.12, indicating 58% year-over-year growth and non-GAAP earnings are projected at $4.50, suggesting 57% improvement from a year ago.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 120.83% due to these changes.

VGM Scores

Currently, Teradyne has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.