Will Rambus Inc. (RMBS) Surprise this Earnings Season?

Rambus Inc. (RMBS) is set to report third-quarter fiscal 2014 results on Oct 20. Last quarter, the company posted an extraordinary positive earnings surprise of 160%. It is also worth noting that Rambus has outperformed the Zacks Consensus Estimate in all the four preceding quarters with an average positive surprise of 852.5%.

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

Growth Factors this Past Quarter

Rambus posted better-than-expected second-quarter fiscal 2014 results. Both top and bottom lines compared favorably on a year-over-year basis primarily attributed to licensing agreements with Micron Technology, SK Hynix, Nanya Technology and Qualcomm.

Rambus is going through a restructuring phase and we expect it to yield favorable results in the coming quarters. The company has resolved several of its legal disputes, which lowered litigation expenses and positively impacted operating results. Additionally, the licensing agreements — the result of successful monetization of its patents — remain a recurring revenue source for Rambus.

Moreover, with the rising popularity of energy-efficient lighting, LED products are finding a place in the latest architectural, retail, commercial and residential lighting fixtures. We find Rambus in a favorable position to capitalize on this opportunity.

However, competition from Semiconductor Manufacturing International Corp. and Advanced Micro Devices and customer concentration remain headwinds for the company. The company’s investments in the CryptoManager platform and certain memory and interface technologies can also impact margins in the near term.

Earnings Whispers?

Our proven model does not conclusively show that Rambus will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. 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 5 cents. Hence, the difference is 0.00%.

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 Ranks #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 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) with an Earnings ESP of +4.62% and a Zacks Rank #2 (Buy).

Seagate Technology Public Limited Company (STX) has an Earnings ESP of +1.60% and a Zacks Rank #3 (Hold).

Allegheny Technologies Inc. (ATI) with an Earnings ESP of +40.0% and a Zacks Rank #3.

Read the Full Research Report on STX
Read the Full Research Report on AAPL
Read the Full Research Report on ATI
Read the Full Research Report on RMBS


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