Is a Beat in Store for Seagate (STX) This Earnings Season?

Seagate Technology plc STX is scheduled to report first-quarter fiscal 2021 earnings on Oct 22.

The company anticipates first-quarter fiscal 2021 non-GAAP earnings of 85 cents (+/-15 cents) per share.

The Zacks Consensus Estimate for earnings per share has been steady at 87 cents in the past 30 days, which suggests a decline of 15.5% from the year-ago reported figure.

Seagate Technology PLC Price and EPS Surprise


Seagate Technology PLC Price and EPS Surprise

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

Seagate expects first-quarter fiscal 2021 revenues of 2.3 billion (+/- 200 million). The Zacks Consensus Estimate for revenues is pegged at $2.33 billion, which indicates a decline of 9.7% from the year-ago quarter’s reported figure.

Notably, the company surpassed the Zacks Consensus Estimate in the trailing three quarters and missed once, the average surprise being 1.7%.

Factors Likely to Have Influenced Q1

Seagate’s fiscal first-quarter performance is expected to have benefited from strengthening traction for the mass capacity product portfolio. Also, higher demand for hard disk drive (“HDD”) across hyperscalers, edge and enterprise markets, driven by exponential data growth triggered by the coronavirus crisis-led digitization, is expected to have added to top-line numbers.

Seagate has also been ramping up its portfolio of 18 terabyte (TB) drives, which is a positive. In September 2020, the company introduced an 18TB helium-based HDD to the Exos X portfolio of enterprise drives. Further, it rolled out 18TB IronWolf Pro storage HDD, which can support workloads of around 300TB capacity per year along with two SATA-based SSDs namely IronWolf Pro 125 and IronWolf 125.

Moreover, shelter-in-place orders have led to a surge in gaming activities. This continuing trend is expected to have boosted sales of the company’s gaming solid state drives or SSDs on improving demand from notebooks and video game consoles. This is likely to have driven revenues in the to-be-reported quarter.

Further, growing demand for SSDs in data centers is expected to have benefited the top line in the quarter under review. The Zacks Consensus Estimate for fiscal first-quarter Enterprise Data Solutions, SSD & Other revenues is pegged at $189 million, which indicates growth of 0.5% year over year.

The improving trend in PC shipments in the third quarter of the calendar year 2020 is likely to have contributed to HDD sales. Notably, PCs have been the biggest users of HDDs, and Seagate derives the bulk of its revenues from these devices. Per an IDC report, PC shipments grew 14.6% in the third quarter of calendar year 2020. This, in turn, is likely to get reflected in Seagate’s fiscal first-quarter results.

However, coronavirus crisis-induced sluggish IT spending across small and medium-sized enterprises, as revealed by IDC, could have resulted in slowing demand for its nearline products in the fiscal first quarter.

Also, supply-chain disruptions, stemming from the coronavirus outbreak, are likely to affect the end-market demand for Seagate, at least in the near term. Moreover, management expects to witness higher costs, owing to the COVID-19 crisis.

Further, increasing expenses on product enhancements amid stiff competition in the storage market from Western Digital are likely to have put pressure on the bottom line in the quarter under review.

Notable Developments in Q1

During the fiscal first quarter, Seagate unveiled the CORTX which is an open-source object storage software. CORTX enables developers to gain access to mass capacity- data storage architectures.

Markedly, the new offerings already witnessed adoption by UK Atomic Energy Authority (“UKAEA”), The French Alternative Energies and Atomic Agency (“CEA”), Fujitsu Limited and Toyota Motor Corporation.

The company also launched Lyve Drive Rack. It is a flexible converged storage infrastructure that allows users to implement CORTX via a reference architecture to develop mass capacity private storage cloud.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Seagate this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Seagate has an Earnings ESP of +4.45% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some other stocks you may consider as our proven model shows that these too have the right mix of elements to beat estimates this time:

Avnet AVT has an Earnings ESP of +39.13% and it currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Corning Incorporated GLW has an Earnings ESP of +0.59% and it presently flaunts a Zacks Rank of 1.

Sirius XM Holdings SIRI currently has an Earnings ESP of +7.14% and a Zacks Rank of 2.

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