Can FormFactor (FORM) Surprise this Earnings Season?

Zacks

FormFactor Inc. (FORM) is set to report second-quarter 2014 results on Jul 30. Last quarter, it posted a 43.6% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

FormFactor posted encouraging first quarter 2014 results with both the top and bottom lines beating the Zacks Consensus Estimate. The company witnessed strong momentum in the System on Chip business with escalating customer attention on the company’s product solutions, including its copper pillar test solutions, mainly driven by mobile, industrial and automotive applications.

It also made noteworthy progress in recovering from customer-specific DRAM problem that it faced in 2013. Revenues for DRAM products also increased. The increase was primarily driven by high demand for mobile computing and favorable pricing in the quarter. Furthermore, the revival of business due to better implementation and revitalization at SK Hynix also contributed to the increase.

These developments will enable FormFactor to both re-engage with consumers and initiate new technologies into its operational practices. Additionally, management’s recent decision to focus on the mobile segment is likely to be beneficial.

For the second quarter, FormFactor expects revenues in the range of $62.0−$66.0 million. Non-GAAP gross margin is expected to be in the range of 31%–34%. Non-GAAP operating expenses are expected to be $19.0–$20.0 million. Cash flow is expected to be breakeven to positive $3 million.

Earnings Whispers?

Our proven model does not conclusively show that FormFactor will beat estimates 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 a 4 cents per share. Hence, the difference is 0.00%.

Zacks Rank: FormFactor’s Zacks Rank #1 (Strong Buy), when combined with a 0.00% ESP makes surprise prediction difficult. We need to have a positive ESP to be confident about an earnings surprise.

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 want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Charter Communications, Inc. (CHTR), with Earnings ESP of +375.00% and a Zacks Rank #1

Synaptics Inc. (SYNA), with Earnings ESP of +4.07% and a Zacks Rank #1

TIM Participacoes S.A. (TSU), with Earnings ESP of +16.67% and a Zacks Rank #1

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