Teradyne, Inc. (NASDAQ:TER) defied analyst predictions to release its second-quarter results, which were ahead of market expectations. Teradyne delivered a significant beat to revenue and earnings per share (EPS) expectations, with sales hitting US$839m and statutory EPS reaching US$1.05, both beating estimates by more than 10%. Earnings are an important time for investors, as they can track a company’s performance, look at what the analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the 15 analysts covering Teradyne are now predicting revenues of US$2.85b in 2020. If met, this would reflect a credible 2.7% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to dip 8.1% to US$3.44 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$2.59b and earnings per share (EPS) of US$2.64 in 2020. There has definitely been an improvement in perception after these results, with the analysts noticeably increasing both their earnings and revenue estimates.
With these upgrades, we’re not surprised to see that the analysts have lifted their price target 13% to US$86.18per share. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Teradyne, with the most bullish analyst valuing it at US$110 and the most bearish at US$60.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that Teradyne’s revenue growth is expected to slow, with forecast 2.7% increase next year well below the historical 8.9%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 9.2% next year. Factoring in the forecast slowdown in growth, it seems obvious that Teradyne is also expected to grow slower than other industry participants.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Teradyne’s earnings potential next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Teradyne going out to 2022, and you can see them free on our platform here..
Before you take the next step you should know about the 1 warning sign for Teradyne that we have uncovered.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.