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Zacks Industry Outlook Highlights: Seagate Technology, Qumu and Western Digital

Zacks Equity Research

For Immediate Release

Chicago, IL – August 12, 2019 – Today, Zacks Equity Research discusses Computer-Storage Devices, including Seagate Technology PLC STX, Qumu Corporation QUMU and Western Digital Corporation WDC.

Link: https://www.zacks.com/commentary/462417/computer-storage-devices-industry-outlook-appears-dim?art_rec=home-home-investment_ideas_stocks-ID06-txt-462417

The Zacks Computer-Storage Devices industry comprises companies that design, develop, manufacture and market a broad range of hard disk drives (HDDs) utilized in desktop PCs, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.

Some of the industry participants also provide software-defined all-flash solutions that are uniquely fast and cloud capable. There are others that offer high-performance memory subsystems and enterprise storage and data management software, and hardware products and services.

Let’s take a look at the industry’s three major themes:

  • The industry is benefiting from increasing utilization of high-storage mobile devices. Widespread use of streaming media, cloud storage solutions, cloud-based apps, data virtualization and other data-intensive activities have put the industry on growth trajectory. Notably, the industry players are well poised for growth on the back of rapid increase in the amount of data, complexity of data formats and the need to scale resources at regular intervals.
  • Reviving PC market scenario should provide a boost to the industry’s top line. That’s because PCs remain the biggest user of HDDs and the industry participants still derive bulk of their revenues from these devices.
  • However, the Computer – Storage Devices industry is facing challenges owing to NAND flash pricing, which is currently on the decline on account of oversupply and weaker-than-expected growth in end-market demand.

Zacks Industry Rank Indicates Cloudy Prospects

The Zacks Computer – Storage Devices industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #217, which places it at the bottom 15% of 256 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has declined 52.6%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags Sector and S&P 500

The Zacks Computer-Storage Devices industry has underperformed the broader sector as well as the Zacks S&P 500 composite over the past year.

The industry has declined 29.7% over this period against the S&P 500’s rally of 0.4% and the broader sector’s decline of 2.2%.

Industry’s Current Valuation

On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer storage devices companies, we see that the industry is currently trading at 13.48X compared with the S&P 500’s 17.71X. It is also below the sector’s forward-12-month P/E of 20.76X.

Over the past five years, the industry has traded as high as 18.67X and as low as 7.80X, with median being at 12.49X.

Bottom Line

Robust market adoption of cloud computing, big data, IoT, auto, connected devices, VR and AI will continue to aid revenue growth for the industry participants. However, operational risks, rising construction costs, entitlement delays and failure to fulfill government requirements are likely to remain headwinds.

Currently, none of the stocks in the Zacks Computer Storage Devices industry carry either a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may take a look at.

Seagate Technology PLC: This hard disc drives, solid state drives and solid state hybrid drives provider has gained 167.9% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current-fiscal EPS has declined 3.6% over the past 30 days.

Qumu Corporation: This enterprise video solutions provider has gained 70% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current-fiscal EPS has remained unchanged at a loss of 67 cents over the past seven days.

Western Digital Corporation: The company designs, develops, manufactures and markets a broad range of HDDs used in desktop PCs, servers, network-attached storage devices. It has gained 49.3% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current-fiscal EPS has decreased 3.4% over the past 30 days.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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Qumu Corporation (QUMU) : Free Stock Analysis Report
 
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