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What's in the Offing for SMART Global's (SGH) Q4 Earnings?

Zacks Equity Research

SMART Global Holdings SGH is scheduled to report fourth-quarter fiscal 2019 results on Oct 3.

We note that the company surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed the same twice, the average negative surprise being 0.74%.

Past-Quarter Performance

In third-quarter fiscal 2019, SMART Global reported non-GAAP earnings of 34 cents per share, which missed the Zacks Consensus Estimate of 37 cents. The figure declined 81.5% year over year and 55.8% sequentially.

Revenues fell 29.7% from the year-ago quarter and 22.5% from the preceding quarter to $235.7 million and also lagged the Zacks Consensus Estimate of $265 million.

The deterioration was mainly due to declining DRAM and Flash prices and inventory corrections at major OEM customers. Further, unfavorable timing of orders was a concern.

Estimates for Q4
 
For fourth-quarter fiscal 2019, the company expects revenues in the range of $270-$280 million. The Zacks Consensus Estimate for the same is currently pegged at $285.07 million.

Further, the company anticipates non-GAAP loss per share between 55 cents and 65 cents. The consensus mark for loss stands at 68 cents.

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

SMART Global Holdings, Inc. Price and EPS Surprise

 

SMART Global Holdings, Inc. Price and EPS Surprise

SMART Global Holdings, Inc. price-eps-surprise | SMART Global Holdings, Inc. Quote

Factors to Consider

The company is optimistic about improving unit volumes despite declining memory prices. This improvement is likely to stabilize the company’s performance in Brazil in the quarter under review.

Further, we expect strength in Specialty Compute business to drive top-line growth of SMART Global. Strong product pipeline and declining inventories are likely to accelerate fiscal fourth quarter sales within this business unit.

Furthermore, the Penguin buyout, which has expanded the company’s reach into new and growing markets of AI and ML, is a key growth driver of the compute business. Also, Penguin’s offerings are much in demand in the aerospace and retail automation space. The company’s Relion family of Linux-based servers are gaining traction across data center, computing and AI customers.

The company is also upbeat about its Specialty Memory business. Expanding new product families are likely to drive sales within this business unit in the to-be-reported quarter.

Notably, small form factor 32-gigabyte industrial-grade SODIMM module and a NAND-based SATA SSD – T5E, which belong to SMART RUGGED product family of Specialty Memory business, are performing well.

We believe a strengthening customer base and deepening focus on long-life products of SMART Global are expected to benefit its fiscal fourth-quarter results.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. Meanwhile, Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

SMART Global has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks to Consider

Here are a few of stocks you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Coupa Software COUP has an Earnings ESP of +3.73% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ciena CIEN has an Earnings ESP of +0.45% and a Zacks Rank #2.

Okta OKTA has an Earnings ESP of +2.04% and a Zacks Rank #3.

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