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Seagate (STX) Gearing Up for Q4 Earnings: What's in Store?

Zacks Equity Research
·4 mins read

Seagate Technology plc STX is slated to release fourth-quarter fiscal 2020 earnings on Jul 28.

The company anticipates fourth-quarter fiscal 2020 non-GAAP earnings to be $1.28 (+/- 10%) per share.

The Zacks Consensus Estimate for earnings has been steady at $1.28 per share in the past 30 days, which suggests an improvement of 48.8% from the year-ago reported figure.

Seagate expects fourth-quarter fiscal 2020 revenues to be 2.6 billion (+/- 7%). Management is banking on growing clout of high capacity nearline drives and demand recovery in China to drive revenues and profitability.

The Zacks Consensus Estimate for revenues is pegged at $2.61 billion, which indicates rise of 9.9% from the year-ago quarter’s reported figure.

Notably, the company has a trailing four-quarter earnings surprise of 4.16%, on average.

Seagate Technology PLC Price and EPS Surprise

Seagate Technology PLC Price and EPS Surprise
Seagate Technology PLC Price and EPS Surprise

Seagate Technology PLC price-eps-surprise | Seagate Technology PLC Quote

Factors Likely to Have Influenced Q4

Seagate’s fiscal fourth-quarter performance is expected to have benefited from robust traction for the company’s nearline products, primarily the latest 16-terabyte products, due to solid demand from cloud and hyperscale customers.

Notably, demand is being driven by surge in data consumption as people are increasingly working and studying from home due to the ongoing coronavirus pandemic. This has led to bandwidth and latency issues, which has created the need for efficient storage infrastructure at the edge.

Moreover, the coronavirus-led shelter-in-place orders have led to an increase in gaming. This is likely to have bolstered sales of the company’s gaming solid state drives or SSDs on improving demand from notebooks and video game consoles. This is expected to have driven revenues in the to-be-reported quarter.

Further, growing demand for SSDs in data centers which is driving growth in the NAND market is expected to have benefited the top line in the quarter under review. Stabilizing NAND flash prices, per a Statista report, is likely to have bolstered fiscal fourth-quarter performance.

The Zacks Consensus Estimate for fiscal fourth-quarter Enterprise Data Solutions, SSD & Other revenues is pegged at $184 million, which indicates growth of 10.2% year over year.

Also, robust usage of video and image applications in certain Asian markets is anticipated to have contributed to top-line growth in the quarter under review.

Growing clout of the company's products instill confidence in the stock. Notably, shares of Seagate are down 16.9% year-to-date compared with the industry’s decline of 22.3%.

Improving trend in PC shipments in the second quarter of calendar year 2020 is likely to have contributed to HDD sales. This, in turn, is likely to get reflected in the fiscal fourth-quarter results.

Notably, PCs remain the biggest users of HDDs, and Seagate still derives the bulk of its revenues from these devices. Per Gartner’s preliminary data, PC shipments in second-quarter 2020 improved 2.8% year over year to 64.8 million units. This is likely to have boosted the top line in the fiscal fourth quarter.

The Zacks Consensus Estimate for fiscal fourth quarter HDD revenues is pegged $2.431 billion, which indicates growth of 10.3% year over year.

However, increasing expenditure on product innovation and development amid stiff competition in the storage market from Western Digital WDC, is likely to have impacted profitability in the fiscal fourth quarter.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for Seagate this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Seagate has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider as our proven model shows that these have the right mix of elements to beat estimates this time:
Synaptics Incorporated SYNA has an Earnings ESP of +10.60% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip Technology Incorporated MCHP has an Earnings ESP of +3.09% and a Zacks Rank of 1.

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