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Will Seagate Technology (STX) Miss Earnings Estimates?

Zacks Equity Research

Storage solutions provider Seagate Technology plc (STX) is set to report fourth-quarter fiscal 2014 results on Jul 17. Last quarter, the company posted a positive earnings surprise of 6.35%. However, it is also worth noting that Seagate has underperformed the Zacks Consensus Estimate in two out of the four preceding quarters with an average negative surprise of 0.01%.

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

Growth Factors this Past Quarter

Seagate reported mixed third-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The increase in investments to provide new and innovative products, sluggish macroeconomic conditions and a flattish price environment prompted the company to provide a modest guidance.

Recently, in a bid to strengthen its flash storage capabilities, Seagate agreed to pay $450 million to acquire the Accelerated Solutions Division (:ASD) and Flash Components Division (:FCD) from Avago Technologies. The acquisition will not only boost Seagate’s enterprise-class PCIe (Peripheral Component Interconnect Express) flash offerings but also provide solid state drive (SSD) controller capabilities.
Moreover, the company is gaining traction with its new products that are targeted at the surveillance and video analytics market as well as other hybrid drives. Seagate’s cloud-based applications have also received a lot of customer interest.

Additionally, synergies from acquisitions and product innovations continue to drive growth. The company’s significant exposure to high-end corporate desktop and enterprise server markets also remains a positive. Nonetheless, competition from Western Digital Corp., SanDisk Corp. and Fusion-io is a concern, going forward.

Earnings Whispers?

Our proven model does not conclusively show that Salesforce 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 $1.09. Hence, the difference is 0.00%.

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

Other 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:

NVIDIA Corporation (NVDA) has an Earnings ESP of +31.58% and holds a Zacks Rank #1 (Strong Buy).

Silicon Motion Technology Corp. (SIMO), Earnings ESP of +33.33% and a Zacks Rank #1

Intel Corporation (INTC), Earnings ESP of +1.92% and a Zacks Rank #1

Read the Full Research Report on STX
Read the Full Research Report on INTC
Read the Full Research Report on NVDA
Read the Full Research Report on SIMO

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