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Seagate Ups Q1 Earnings Guidance, Maintains Revenue Outlook

Zacks Equity Research

Shares of Seagate Technology plc STX closed 1.3% up on Sep 18 after the company 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. Notably, the Zacks Consensus Estimate for first-quarter earnings is currently pegged at 89 cents per share.

Management notes that reduction in estimated depreciation expense pertaining to useful life of capital equipment by approximately $25 million resulted in an increase in 9 cents per share.

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.

Seagate provided no updates on margins. Earlier, the company had projected gross margins to be approximately flat on a sequential basis.


Notably, Seagate stock has returned 51% year to date, outperforming industry’s rally of 23.2%.

Raised Bottom Line Guidance Bodes Well

Reduction in expenses resulting in an increase in earnings is expected to aid Seagate in enhancing financial position.

Moreover, Seagate continues to enhance shareholders’ value through dividends and share repurchases. Notably, in the fourth quarter fiscal 2019, the company repurchased 7.8 million shares worth $350 million and paid out dividends worth $174 million.

At the end of the last-reported quarter, the company had $2.2 billion remaining under the share repurchase authorization. Notably, its board of directors approved a cash dividend of 63 cents per share payable Oct 9, 2019.

These investor-friendly initiatives and reduction in expenses are expected to favor earnings growth and also instill investors’ confidence in the stock.

Q4 at a Glance

Seagate delivered 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.

Both the top and bottom line witnessed year-over-year decline, on account of uncertain macroeconomic environment and regulatory impediments.

Wrapping Up

Seagate is expected to benefit from increasing traction for mass storage solutions across its edge and enterprise end markets, going ahead. Moreover, synergies from acquisitions and product innovations remain a tailwind.

However, stiff competition in the disk drive market from Western Digital WDC and drastic pricing pressure owing to supply/demand volatility remain headwinds.

Zacks Rank & Stocks to Consider

Currently, Seagate carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Anixter International AXE and Perficient PRFT, both flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Anixter and Perficient is currently pegged at 8% and 10.75%, respectively.

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Seagate Technology PLC (STX) : Free Stock Analysis Report
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