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Seagate (STX) Up 2.5% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Seagate Technology PLCSTX . Shares have added about 2.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Seagate reported first-quarter fiscal 2018 non-GAAP earnings of 96 cents per share, which surpassed the Zacks Consensus Estimate by a dime. However, the figure declined 3% on a year-over-year basis.

Revenues of $2.63 billion also topped the Zacks Consensus Estimate of $2.56 billion but decreased 5.9% from the year-ago quarter. Nevertheless, both the top and bottom line figures witnessed a sequential improvement, primarily attributed to strong demand and adoption of Seagate's storage drives.

At the end of the quarter, the company participated in a Bain Capital led consortium. The consortium has entered into an agreement with Toshiba Corporation for the acquisition of Toshiba Memory Corporation. Seagate has committed $1.25 billion for the takeover, which is scheduled for March 2018.

This participation will enable Seagate to enter into an agreement with Toshiba, per which the latter will provide Seagate with NAND supply, thereby helping in its innovation of hard disk drives (HDD), solid state drives (SSD) and hybrid solutions.

Performance in Detail

During the quarter, Seagate shipped a record 70.3 exabytes of HDD storage, with an average capacity of 1.9 terabytes per drive. The company shipped 27.2 exabytes for the enterprise HDD market, each with an average capacity of 3.9 terabytes.

Notably, the advancement and accelerated growth of cloud storage technologies are tailwinds for Seagate's performance. Management believes that the HDD product suite is ready to cater to the demands of the market.

Nearline products' average capacity per drive crossed 5.4 terabytes. Management noted that the company's 10-terabyte helium nearline product was one of the top revenue generators in the quarter. Around 1 million units were shipped, which was thrice as much as in the previous quarter. Growth in the 12-terabyte helium nearline product line was also encouraging. Given the impressive customer feedback, the company expects to bank on the market adoption of these products.

Within the edge and customer verticals, the notebook compute segment saw 37% year-over-year growth with exabytes increasing 75% from the year-ago quarter. Gaming business revenues were up 13% sequentially.

Non-HDD segment revenues witnessed a 17% year-on-year increase and a 30% improvement sequentially to $242 million.

Margin Details

Non-GAAP gross margin was 29%. Non-GAAP operating expenses were down 17% on a year-over-year basis to $408 million. This decrease in expenses was primarily due to certain cost improvement initiatives.

The company divested a major portion of its high performance computing assets, which is anticipated to result in a savings of approximately 20 million a year.

Balance Sheet and Cash Flow

Seagate ended the September quarter with cash and cash equivalents of $2.3 billion and 289 million ordinary shares outstanding. The company's board has approved a quarterly dividend payment of 63 cents for the September quarter to be paid on Jan 3, 2018.

During the quarter, cash flow from operations was $237 million and free cash flow was $113 million.

Guidance

Management anticipates, in an era of advancement of cloud solutions and growing cloud and silicon storage business segments, second-quarter revenues to increase 3% to 5% compared to the first quarter, backed by a strong growth in exabyte demand.

Non-GAAP operating expenses are expected to decrease 2% to 3% from the prior quarter with further cost stringent approaches.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been three moves higher compared to two lower in the last 60 days.

Seagate Technology PLC Price and Consensus

Seagate Technology PLC Price and Consensus | Seagate Technology PLC Quote

VGM Scores

At this time, Seagate's stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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