Why Is Teradyne (TER) Down 9.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Teradyne (TER). Shares have lost about 9.4% in that time frame, underperforming the S&P 500.

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

Teradyne Surpasses Q4 Earnings & Revenue Estimates

Teradyne Inc. reported fourth-quarter 2018 earnings of 63 cents per share, surpassing the Zacks Consensus Estimate by 13 cents. The figure increased 37% year over year.

Revenues of $519.6 million increased 8.4% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $496 million and the guided range of $480 and $510 million.

Approximately 65.8% of the revenues came from semiconductor Testing platforms, 16.2% from Industrial Automation, 10.4% from system Test business and the remaining 7.7% from wireless Test business.

Inside the Headlines

The increase in total revenues wasdriven by escalating demand for Semiconductor and Wireless test businesses.

Teradyne’s Semiconductor Test Group witnessed an increase in revenues fromrecord memory and analog devices, which helped offset the weakness in mobility test shipments in 2018.

Industrial Automation segment witnessed 38% growth year over yearin 2018, but the growth was below the company’s expectation. Notably, waning demand in China and the automotive sector negatively impacted growth of this segment in 2018.

Margins

Pro-forma gross margin was 59.6%, up 310 basis points (bps) from the prior-year quarter. The increase was due to cost reduction in the manufacture of Universal Robots and favorable product mix.

Total adjusted operating expenses of $197.3 million increased 11.9% year over year. As a percentage of sales, selling & administrative expenses increased from the year-ago quarter, while engineering & development decreased.  As a result, adjusted operating margin came in at 25.8%, up270 bps from the year-ago quarter.

Balance Sheet

As of Dec 31, 2018, Teradyne’s cash and cash equivalents was$926.8 million, higher than $429.8 million as of Dec 31, 2017.

The company purchased $823 million of its common shares in 2018 and expects to repurchase $500 million of its common shares in 2019. Moreover, the company also declared a cash dividend of 9 cents per share for its shareholders.

Q1 Guidance

Management expects first-quarter 2019 revenues in the band of $460 and $490 million. Non-GAAP earnings per share from continuing operations are likely to be in the range of 39 and 47 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Teradyne has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Teradyne has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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