Rambus Inc. (RMBS) is set to report fourth-quarter fiscal 2014 results on Jan 26. Last quarter, the company posted an extraordinary positive earnings surprise of 120%. Moreover, it is also worth noting that Rambus has outperformed the Zacks Consensus Estimate in all the four preceding quarters with an average positive surprise of 770%.

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

Growth Factors this Past Quarter

Rambus reported mixed third-quarter results as the bottom line surpassed the Zacks Consensus Estimate while the top line missed the same. Also, the year-over-year comparisons were unfavorable primarily due to lower royalty revenues from Samsung and NVIDIA.

Nonetheless, with energy-efficient lighting, LED products finding a place in the latest architectural, retail, commercial and residential lighting fixtures, we believe Rambus is in a favorable position to capitalize on this opportunity.

Rambus is going through a restructuring phase and we expect it to yield favorable results in the coming quarters. The company has resolved several of its legal disputes, which lowered litigation expenses and positively impacted operating results. Additionally, licensing agreements — the results of successful monetization of its patents — remain a recurring revenue source for Rambus.

However, competition from Semiconductor Manufacturing International Corp. and Advanced Micro Devices and customer concentration remain headwinds for the company. The company’s investments in the CryptoManager platform and certain memory and interface technologies can also impact margins in the near term.

Earnings Whispers?

Our proven model does not conclusively show that Rambus will beat earnings 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 6 cents. Hence, the difference is 0.00%.

Zacks Rank: Rambus’ Zacks Rank #3 (Hold), when combined with a 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

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

Apple Inc. (AAPL) with Earnings ESP of +0.78% and a Zacks Rank #2 (Buy).

The Boeing Company (BA) with Earnings ESP of +1.44% and a Zacks Rank #2.

Cognizant Technology Solutions Corporation (CTSH) with Earnings ESP of +1.70% and a Zacks Rank #2.

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