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Can PDF Solutions (PDFS) Surprise this Earnings Season? - Analyst Blog

Zacks Equity Research
Updated

PDF Solutions Inc. (PDFS) is set to report fourth-quarter 2014 results on Feb 5. Last quarter, the company posted a positive earnings surprise of 200%. Moreover, it is worth noting that PDF has outperformed the Zacks Consensus Estimate in all the four preceding quarters with an average positive surprise of 75.5%.

Let us see how things are shaping up for this announcement.

Factors to Consider

Despite PDF Solutions’ better-than-expected third-quarter results, the year-over-year comparisons were unfavorable. Results were impacted due to delays in contract signings, which were primarily responsible for the tepid top-line performance.

Nonetheless, the increasing user engagement and multi-year contracts with customers are expected to remain growth catalysts in the next few quarters. This is because the ongoing technology transitions in the semiconductor industry require the qualification and testing of processes, which increases demand for PDF Solutions’ software solutions and services.

The company’s customers include leading foundries like GlobalFoundries and Samsung that are currently trying to improve the yield of their new processes. Therefore, the company will likely see sales momentum.

However, competition from Synopsys, Inc. and KLA-Tencor Corporation, and customer concentration remain headwinds (its top 10 customers contribute 94% of total revenue).

Earnings Whispers

Our proven model does not conclusively show that PDF Solutions is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for PDF Solutions is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 16 cents per share.

Zacks Rank: PDF Solutions sports a Zacks Rank #1 (Strong Buy). 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 Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies, which are worth considering as our model shows that they have the right combination of these two elements:

Bebe Stores, Inc. (BEBE) with an Earnings ESP of +50.0% and a Zacks Rank #1

Twitter, Inc. (TWTR) with an Earnings ESP of +4.76% and a Zacks Rank #3 (Hold)

GrubHub Inc. (GRUB) with an Earnings ESP of +22.22% and a Zacks Rank #3
 


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BEBE STORES INC (BEBE): Free Stock Analysis Report
 
PDF SOLUTIONS (PDFS): Free Stock Analysis Report
 
TWITTER INC (TWTR): Free Stock Analysis Report
 
GRUBHUB INC (GRUB): Free Stock Analysis Report
 
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Zacks Investment Research