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Seagate (STX) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

Seagate Technology plc STX is scheduled to report fiscal fourth-quarter 2019 results on Aug 2. Notably, the company surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average negative earnings surprise of 11.9%.

Seagate Technology PLC Price and EPS Surprise

 

Seagate Technology PLC Price and EPS Surprise

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

 

Q3 at a Glance

Seagate had delivered fiscal third-quarter 2019 non-GAAP earnings of 83 cents per share, surpassing the Zacks Consensus Estimate by 15.3%. However, the figure fell 43.2% from the year-ago period.

Revenues of $2.313 billion slightly outpaced the Zacks Consensus Estimate of $2.311 billion. However, the figure declined 17.5% from the year-ago quarter.

Q4 Guidance & Estimates

Management anticipates fourth-quarter fiscal 2019 revenues to be 2.32 billion (+/- 5%). The Zacks Consensus Estimate for revenues is currently pegged at $2.31 billion, indicating a decline of 18.4% from the year-ago quarter.

Non-GAAP EPS for the fourth quarter is expected to be 83 cents (+/- 5%). The Zacks Consensus Estimate for earnings is pegged at 83 cents, suggesting a fall of 48.8% from the year-ago reported figure. Notably, estimates have remained unchanged in the past 30 days.

Factors Likely to Influence Q4 Results

Secular trend in data growth and growing popularity of high storage capacity of smartphones hold promise. Seagate is focusing on development of high-capacity storage devices to support expansion of cloud infrastructure and cloud applications, which will positively impact fourth-quarter results.

In fact, the company recently expanded Exos X family of enterprise drives with helium-based Exos X16 HDD. Seagate also extended IronWolf and IronWolf Pro family based on Network Attached Storage (NAS) architecture with 16TB storage capacity drives. The product launches are expected to positively impact the upcoming quarterly results.

Notably, average capacity per drive of 7.2 terabytes improved 11% on a sequential basis in the last reported quarter. Management noted that the company’s 12-terabyte helium nearline product was one of the top revenue generators in the third quarter. The momentum is expected to aid the fourth-quarter results and in the days ahead.

Further, the company has commenced shipping of its highest capacity 16-terabyte products in the last reported quarter. The company anticipates the offering to be a notable revenue driver going ahead, as production reaches higher volumes in later 2019.

The incremental adoption of the company’s latest solutions is expected to bolster the top line in the to-be-reported quarter.

It is worth mentioning that, per Gartner’s preliminary data, PC shipments in second-quarter 2019 improved 1.5% year over year to 63 million units. Going by the IDC report, shipments rose 4.7% on a year-over-year basis and totaled 64.9 million in the period under review.

PCs remain the greatest users of HDDs and Seagate derives the bulk of revenues from these devices. Improving trend in PC shipments is beneficial to business prospects of Seagate and is likely to positively impact fourth-quarter results.

However, Seagate is bearing the brunt of persistent decline in NAND flash pricing owing to oversupply and lower-than-expected growth in end-market demand. This is likely to weigh on the to-be-reported quarter’s results.

Further, sluggish demand for nearline HDDs is likely to limit margin expansion in the forthcoming release. Moreover, uncertain macroeconomic environment and highly leveraged balance sheet remain headwinds.

Moreover, Seagate faces stiff competition from Western Digital WDC, Hitachi, Samsung and Intel in the storage market, which remains a potential headwind.

What the Zacks Model Unveils

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

Seagate has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%. 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 which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Lockheed Martin Corporation LMT has an Earnings ESP of +2.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AmerisourceBergen Corporation ABC has an Earnings ESP of +0.82% and a Zacks Rank #3.

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