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Why Is Teradyne (TER) Down 3.4% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Teradyne, Inc. (TER - Free Report) . Shares have lost about 3.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Beats Earnings and Revenue Estimates in Q2

Teradyne reported second-quarter 2017 earnings of 90 cents per share, surpassing the Zacks Consensus Estimate of 86 cents. Also, earnings were up 72.0% year over year.
 
Revenues
 
Revenues of $696.9 million increased 52.5% sequentially and 31% year over year. Also, the figure came above the Zacks Consensus Estimate of $665.0 million and at the higher-end of the management’s guided range of $660–$700 million.
 
Approximately 85% of revenues came from semiconductor testing platforms, 6% from Industrial Automation, 5% from system test business and the remaining 4% wireless test business.
 
Bookings
 
Total orders amounted to $462 million, down 22.4% sequentially.
 
On a sequential basis, only Wireless Test Group orders were up 11.1% to $30 million, while all others decreased. Semiconductor Test orders were down 22.5% year over year, Systems Test orders decreased 37.0%, while Industrial Automation orders were down 26.7%.
 
Margins
 
Pro forma gross margin was 56%, down 200 basis points (bps) sequentially but up 280 bps year over year. The sequential decrease was due to an unfavorable mix.
 
Total adjusted operating expenses of $170.9 million increased 8.5% year over year. As a percentage of sales, both engineering & development expenses and selling & administrative expenses decreased. As a result, adjusted operating margin came in at 31.3%, up 860 bps sequentially and 790 bps year over year.
 
GAAP net income was $175.0 million in the first quarter against net loss of $223.5 million in the year-ago quarter. Excluding special items but including stock-based compensation expense, non-GAAP net income came in at $181.5 million or 90 cents per share compared with $111.7 million or 55 cents in the year-ago quarter.
 
Balance Sheet
 
Teradyne ended the quarter with cash and cash equivalents and marketable securities balance of $1.41 billion, up from $1.22 billion in the prior quarter. Trade receivables were $405.9 million, up from $315 million last quarter.
Cash flow from operations was $230.3 million compared with $61.1 million in the previous quarter. Capex was $23.9 million compared with $22.1 million in the first quarter.
 
Share Repurchase/Dividend
 
In the reported quarter, Teradyne spent $56.6 million on share repurchases and paid $13.9 million as dividend.
 
Q3 Guidance
 
Management expects third-quarter revenues in the $455–$485 million range, down 32.6% sequentially at the mid-point. The Zacks Consensus Estimate is pegged at $445.4 million.
 
Non-GAAP earnings per share from continuing operations are likely to be in the range of 39–46 cents. The Zacks Consensus Estimate is pegged at 42 cents. GAAP earnings are expected in the range of 35–42 cents.
 
Conclusion
 
Teradyne is a leading provider of automated test equipment. The company reported strong second-quarter results, with both the top line and the bottom line outperforming the respective Zacks Consensus Estimate.
 
Management expects strong demand in its core test businesses in the upcoming quarter. Given the popularity of its products, the Universal Robots acquisition and continuous design wins, we are optimistic about Teradyne’s performance in the long run. However, weakness in the wireless test market could be a near-term concern.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Teradyne, Inc. Price and Consensus

 

VGM Scores

At this time, the stock has a Growth Score of C, though it is lagging a bit on the momentum front with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Based on our scores, the stock is equally suitable for growth and value investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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