Seagate (STX) Gears Up for Q1 Earnings: What's in Store?

Seagate Technology plc STX is scheduled to report fiscal first-quarter 2020 results on Nov 1. Notably, the company surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average positive earnings surprise of 9.9%.

Seagate Technology PLC Price and EPS Surprise

 

Seagate Technology PLC Price and EPS Surprise

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

Q1 Guidance & Estimates

Seagate recently updated first-quarter fiscal 2020 earnings guidance.

The company now projects non-GAAP earnings to be 99 cents (+/- 5%) per share, up from previously guided 90 cents (+/-5%). This reflects an improvement of 10% considering the mid-point. The Zacks Consensus Estimate for earnings is pegged at $1.00 per share, suggesting a decline of 41.2% from the year-ago reported figure. Notably, estimates have remained stable in the past 30 days.

Nonetheless, the company continues to anticipate first-quarter fiscal 2020 revenues to be 2.55 billion (+/- 5%). The Zacks Consensus Estimate for revenues is pegged at $2.55 billion. The Zacks Consensus Estimate for revenues is currently pegged at $2.55 billion, indicating a decline of 14.7% from the year-ago quarter.

Q4 at a Glance

Seagate had reported fiscal fourth-quarter 2019 non-GAAP earnings of 86 cents per share, surpassing the Zacks Consensus Estimate of 83 cents. However, the figure declined from $1.62 per share reported in the year-ago period.

Revenues of $2.371 billion marginally outpaced the Zacks Consensus Estimate of $2.313 billion. However, the figure declined 16.4% from the year-ago quarter.

Factors Likely to Impact Q1 Results

Secular trend in data growth and growing popularity of high storage capacity of smartphones is likely to have driven the first-quarter results. Seagate has been focusing on development of high-capacity storage devices to support expansion of cloud infrastructure and cloud applications, which is likely to get reflected in the first-quarter results.

Moreover, Seagate is expected to have benefited from increasing traction for mass storage solutions across its edge and enterprise end markets. Further, synergies from acquisitions and product innovations are anticipated to have positively impacted the upcoming quarterly results.

The company shipped 33.1 exabytes for the edge non-compute HDD market, with an average capacity of 2.5 terabytes. This marked a sequential increase of 13.4% in exabytes shipments, a trend that is expected to have continued in the first quarter.

The company’s first-quarter top line is likely to reflect incremental adoption of the company’s latest solutions.

Per Gartner’s preliminary data, PC shipments in the third quarter inched up 1.1% year over year to 68 million units. Going by the IDC report, shipment rose 3% on a year-over-year basis and totaled 70.4 million in the period under review.

PCs remain the biggest 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 have positively impacted the first-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 have affected the first-quarter results.

Further, soft demand witnessed from cloud service providers (CSPs) and OEM enterprise customers is likely to get reflected in the upcoming quarterly results. Moreover, uncertain macroeconomic environment and highly leveraged balance sheet are likely to have negatively impacted the first-quarter results.

Furthermore, the company’s first-quarter results are likely to reflect stiff competition from Western Digital WDC, Hitachi, Samsung and Intel in the storage market .

What Does the Zacks Model Say

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

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Seagate is 0.00%.

Zacks Rank: Seagate currently carries a Zacks Rank of #3.

Stocks With Favorable Combination

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

Advanced Micro Devices, Inc. AMD has an Earnings ESP of +6.54% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Altria Group, Inc. MO has an Earnings ESP of +1.75% and a Zacks Rank #3.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Seagate Technology PLC (STX) : Free Stock Analysis Report
 
Western Digital Corporation (WDC) : Free Stock Analysis Report
 
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
 
Altria Group, Inc. (MO) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research