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Zack’s Bull of the Day: Tessera Tech

Tessera Technologies (NASDAQ:TSRA) is expected to announce Q4 2014 earnings on February 10, after the market close.  The technology company has had several positive news announcements which have caused significant positive earnings revisions over the past thirty days.

This Zacks Ranked #1 (Strong Buy) company develops semiconductor packaging technology that meets the demand for miniaturization and increased performance of electronic products. Tessera licenses its technology to its customers, enabling them to produce semiconductors that are smaller and faster, and incorporate more features. These semiconductors are utilized in a broad range of communications, computing and consumer electronic products.

Positive Factors

In mid-January Tessera announced that after nearly two years of legal battles that they have finally settled their outstanding litigation with Amkor.  According to the agreement Amkor will pay Tessera $155 million over the next 4 years in 16 quarterly payments starting Q1 2015.  This caused Tessera to raise its 2015 recurring revenue guidance from $195 million to $235 million.

This has multiple positives for the company; it will begin to reduce expenses related to legal issues, operating margins will now be in a range of 58-66% ahead of the previous range of 48-60%, and it can begin to have technical collaboration discussions on advanced packaging technologies with Amkor going forward.

Also, the company announced that in Q3 14 that the board of directors increased their current share repurchase program by another $100 million (to a current level of 160.8 million).  In Q3 14 the company repurchased 162,000 shares at a cost of $4.6 million.

Finally, the company’s core competencies, Invensas Bond Via Array, and FotoNation are expected to continue to show improvements through 2016.  The Bond Via Array segment is expected to show improvements with the collaboration of Amkor and their package-on-package (POP) technology, and FotoNation will continue to lead in face detection industry with enhancements to their FacePower technology.

Increasing Estimates

These positive news stories have caused the Zacks Consensus Earnings Estimates to increase over the past 30 days for Q4 14, Q1 15, FY 14, and FY 15.  Q4 14 estimates have increased from $0.32 to $0.37, FY 14 rose from $2.00 to $2.04, Q1 15 jumped from $0.47 to $0.53, and FY 15 increased from $1.25 to $1.75.

Further, this company has beaten the Zacks Consensus Estimate for the past four consecutive quarters with an average positive earnings surprise of 366.43%.  Indicating that not only does Tessera beat the estimates but they crush them.

As you can see in the table below, Tessera has seen significant price appreciation after their last three positive earnings surprises.

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