What's In Store For KLA-Tencor (KLAC) In Q4 Earnings?

KLA-Tencor Corporation (NASDAQ:KLAC) is set to report fourth-quarter fiscal 2016 results on Jul 28. Last quarter, the company posted a positive earnings surprise of 15.00%.

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

Factors to Consider

While uncertainties about the timing of capital equipment purchases remain for this leading provider of process control equipment, its acquisition by Lam Research (NASDAQ:LRCX) is a positive for investors.

With reference to the proposed acquisition between the two companies, the United States Department of Justice (DOJ) has requested for additional information and documentary material. Moreover, to arrive at the terms of a consent decree, executives from both the companies are working with the staff of the DOJ. Both the companies remain optimistic on securing necessary regulatory approvals and expect the transaction to close in the third calendar quarter.

At present, both the companies have clearance from competition authorities in Germany, Ireland, Israel and Taiwan and are in talks with regulators in other jurisdictions.

Given the expected increase in 3D NAND deployments this year and Lam’s strength in the area, which can lead to synergies, FinFET transition at foundries is a positive.

KLA-Tencor’s management is upbeat about a relatively strong performance in the to-be reported quarter given the company’s market leadership, new line of products, growing service revenues and a leaner cost structure.

For the fourth quarter of fiscal 2016, KLA expects shipments of $775-$855 million and revenues in the range of $810-$870 million. Non-GAAP EPS is expected in the range of $1.30 to $1.50.

Earnings Whispers

Our proven model does not conclusively show that KLA-Tencor will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 $1.43. Hence, the difference is 0.00%.

Zacks Rank: KLA-Tencor carries a Zacks Rank #3, which increases the predictive power of ESP. But the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

CDK Global, Inc (NASDAQ:CDK) , with an Earnings ESP of +4.26% and a Zacks Rank #1. The company is slated to report fourth-quarter fiscal 2016 earnings on Aug 3, 2016.

LG Display Co., Ltd. (NYSE:LPL) , with an Earnings ESP of +50.00% and a Zacks Rank #2. The company’s second-quarter 2016 earnings release date is Jul 27, 2016.

Allied Motion Technologies, Inc. (NASDAQ:AMOT) , with an Earnings ESP of +6.67% and a Zacks Rank #3. The company is set to report second-quarter 2016 earnings results on Aug 4, 2016.