Will KLA-Tencor (KLAC) Outperform Earnings? - Analyst Blog

KLA-Tencor Corporation KLAC is set to report third-quarter fiscal 2014 results on Apr 24. Last quarter, the company posted a 7.6% positive surprise. Let's see how things are shaping up for this announcement.

Growth Factors This Past Quarter

KLA's second-quarter earnings of 85 cents exceeded the Zacks Consensus Estimate by 6 cents on higher revenues and impressive expense management. Revenues were up sequentially due to a strong demand environment. Also, gross margins expanded in the last quarter due to a favorable product mix, improved manufacturing and stronger volumes.

For the third quarter of fiscal 2014, KLA expects revenues in the range of $790–$850 million,orders of $700–$900 million and shipments of $720–$780 million. Non-GAAP EPS is expected in the range of $1.00–$1.20.

Earnings Whispers?

Our proven model does not conclusively show that KLA 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 $1.10. Hence, the difference is 0.00%.

Zacks Rank: KLA's Zacks Rank #3 (Hold), when combined with a 0.00% ESP, 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

You could consider other stocks with a positive earnings ESP and Zacks Rank #1, 2 or 3 such as:

Entergy Corp. ETR, with Earnings ESP of +12.00% and a Zacks Rank #1 (Strong Buy).

Vertex Pharmaceuticals Inc. VRTX, with Earnings ESP of +13.16% and a Zacks Rank #1.

Align Technology Inc. ALGN, with Earnings ESP of +13.89% and a Zacks Rank #1.