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Analyst Blog

Rambus Inc. (RMBS - Free Report) is set to report third-quarter 2016 results on Oct 24, 2016. Last quarter, the company posted a positive earnings surprise of 20.0%. Moreover, Rambus has outperformed the Zacks Consensus Estimate in all the four trailing quarters with an average positive earnings surprise of 18.6%.

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

Factors at Play

Rambus had reported strong second-quarter results wherein its top and bottom lines not only recorded year-over-year improvement but also surpassed the respective Zacks Consensus Estimate. The company’s quarterly results mainly benefited from robust growth of its security technology development projects as well as revenue contribution from the acquisition of Smart Card Software Ltd.

RAMBUS INC Price and EPS Surprise

RAMBUS INC Price and EPS Surprise | RAMBUS INC Quote

We believe that Rambus is well poised to capitalize on the rising popularity of energy-efficient lighting, 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. Additionally, licensing agreements — the result of successful monetization of Rambus’ patents — will continue to remain one of the major recurring revenue sources for the company, in our opinion.

Furthermore, the acquisitions of certain serial link assets of Semtech Corporation’s (SMTC - Free Report) Snowbush IP and Smart Card Software will enhance its product offerings, thereby boosting its top and bottom line performance in the to-be-reported quarter, in our view.

Nonetheless, the company’s dismal revenue outlook for the third quarter as well as for the full year makes us slightly cautious about its near-term performance. It should be noted that during the second quarter earnings conference call, Rambus provided revenue guidance for the third quarter and full year, both of which were lower than the respective Zacks Consensus Estimate at that time.

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

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 stand at 10 cents. Hence, the difference is 0.00%.

Zacks Rank: Rambus carries a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are a couple of stocks that you may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Apple Inc. (AAPL - Free Report) , with an Earnings ESP of +0.61% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital Corporation (WDC - Free Report) , with an Earnings ESP of +191% and a Zacks Rank #2.

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