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Factors Setting the Tone for Seagate (STX) in Q1 Earnings

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Factors Setting the Tone for Seagate (STX) in Q1 Earnings

Seagate's (STX) first-quarter results are likely to benefit from growing Exabyte demand.

Seagate Technology Plc STX is scheduled to release first-quarter fiscal 2019 results on Nov 2.

The company has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording an average positive surprise of 9.1%.

In the last reported quarter, Seagate delivered non-GAAP earnings per share came in at $1.62 per share, surpassing the Zacks Consensus Estimate by 17 cents. The figure soared 149.2% from the year-ago period.

Revenues of $2.84 billion outpaced the Zacks Consensus Estimate of $2.71 billion and also surged approximately 18% from the year-ago quarter. The improvement in both top and bottom lines was driven by strong demand and adoption of Seagate’s storage drives.

Notably, Seagate’s stock has returned 10.3% in the past year, against the industry’s decline of 7%.

What to Expect?

Management anticipates first-quarter fiscal 2019 revenues to grow approximately 10% on a year-over-year basis due to strong cloud demand and seasonality in other markets. Further, the company projects revenues to grow 5% sequentially. The corresponding Zacks Consensus Estimate is pegged at $2.98 billion, representing an increase of approximately 13.1% from the year-ago quarter.

For first-quarter fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $1.57 per share, indicating a surge of 63.5% from the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Influence Q1 Results

Seagate is benefiting from growing Exabyte demand across most of the markets it caters. The robust demand is primarily driven by advancement of cloud storage technologies in the industry, exponential growth in stored data, Nearline’s rapid adoption, stable hard disk drives (HDD) pricing environment and low inventory levels. We believe these factors will drive the company’s results in the to-be reported quarter.

With the huge transformations in the storage industry, mobile cloud is taking the center stage. This in turn has bolstered the deployment of high-capacity mass storage products which is beneficial for Seagate.

In the quarter under review, Seagate announced that IronWolf, IronWolf Pro, Barracuda Pro, SkyHawk and Exos X14 — which are part of the Guardian Series of HDDs — are now available in capacity of up to 14 terabyte (TB).

We believe this move is in sync with company’s attempt to capitalize on growing HDD requirement. The company’s expanding portfolio will not only bolster the top line in the to-be-reported quarter but also strengthen its competitive position against Western Digital WDC.

The company’s ramping up of its heat assisted magnetic recording (“HAMR”) technology, which is expected be shipped in 2019, in a bid to improve areal density is yet another positive. This move is anticipated to not only reinforce the company’s leadership in areal density but also boost nearline drive capacity points by at least 24 TB per drive.

Further, hints of PC market stabilization as reflected in the latest report from Gartner bode well. Moreover, collaborations with the likes of Tencent and Baidu BIDU remain notable.

Nonetheless, sluggish macroeconomic conditions, a flattish price environment, and stiff competition from peers remain concerns.

Seagate Technology PLC Price and EPS Surprise


Seagate Technology PLC Price and EPS Surprise | Seagate Technology PLC Quote

What Our Model Says

According to the Zacks model, a company with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Seagate has a Zacks Rank #4 (Sell) and an Earnings ESP of -5.42%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a company which, as per our model, has the right combination of elements to post an earnings beat this quarter:

SeaWorld Entertainment, Inc. SEAS has an Earnings ESP of +7.75% and a Zacks Rank #1. The company is slated to report third-quarter 2018 earnings on Nov 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

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