Apple Upside Hinted By Teradyne Earnings

Our key metric to help us model down to the EPS line is revenue growth specifically two-year revenue growth. The two-year adds up this year's quarter's growth rate plus last year's same-quarter growth rate. That gives us an underlying trend to see if a company's accelerating or decelerating excluding one-timers.

What got us excited is the two-year trend. Look at that above. 15.3% to 34.4% to 43.9% to 55.7%. We were higher than the Street for Q3 and the company beat by about $34 mm in revenues and had a big guide up.

The two-year acceleration ahead of Q3 said to us that their was more upside than downside and Teradyne delivered.

Going forward, however, the two-year revenue growth rate slowed down from 55.7% in Q2 to 43.4% in Q3. Their guide implies a 36% two-year growth rate for the next quarter. So overall growth is coming down which biased our EPS numbers down somewhat getting us to about the valuation the stock’s at today and so we went Neutral.

That’s about Teradyne.

But the earnings call also gave us some hints that Apple could be expecting strong growth.

Apple Upside Hinted By Teradyne

Teradyne produces automatic test equipment. These are machines used to perform automatic tests on equipment like phones during the production process.

Apple is one of Teradyne’s largest customers, so their comments on demand are important and can give us hints ahead of Apple's report.

Here’s what Teradyne said in the release:

"Entering Q4, market conditions in our test businesses are stronger than expected and we’ve positioned our production capacity to respond to potential short lead time demands as we move through the quarter.."

Shorter lead times aren’t typically a good sign. It means a company doesn’t have as much visibility. But here for Apple, shorter lead times seems like a fast catch up in orders trying to catch demand.

The combination of the company saying short lead times associated with stronger demand aligns with Apple a) being late, but b) being in their prime time chasing business.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I ...

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