We expect storage solutions provider Seagate Technology plc (STX) to beat expectations when it reports fiscal first-quarter 2015 results on Oct 27.
Why a Likely Positive Surprise?
Our proven model shows that Seagate is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($1.31 per share) and the Zacks Consensus Estimate ($1.25 per share), stands at +4.80%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Seagate’s Zacks Rank #3 and +4.80% ESP makes us very confident in looking for a positive earnings beat.
What is Driving the Better-Than-Expected Earnings?
The company’s enriched product portfolio and higher mix of original equipment manufacturer (OEM) business are expected to lead to a positive earnings surprise in the soon-to-be-reported quarter. Moreover, Seagate is coming up with customized products to cater to new customers and gain traction in the storage markets.
The demand for Seagate’s solid-state hybrid hard drives (SSHD) is on the rise as the company recently announced that the shipment of the same has reached 10 million. SSHD blends SSD speeds and HDD-class capacity in a more effective manner.
Also, Seagate is focusing more on the enterprise side, which is the key growth area in the information technology sector. Anticipating a potential acceleration in cloud deployments (due to exponential growth in data storage in the cloud), Seagate is investing heavily to deliver high-capacity storage devices that would support expansion of cloud infrastructure and cloud applications. We believe that this will boost margins and reduce Seagate’s dependence on the PC market.
Secular growth of digital data, modest growth in the total addressable market and higher demand for storage are expected to drive near-term results. Additionally, synergies from acquisitions and product innovations continue to drive growth. Furthermore, these factors will more than offset the lack of visibility in the hard disk drive industry and difficult pricing environment.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Facebook, Inc. (FB) with Earnings ESP of +6.25% and a Zacks Rank #2 (Buy).
DDR Corp. (DDR) with Earnings ESP of +3.45% and a Zacks Rank #2.
Western Digital Corporation (WDC) with Earnings ESP of +0.98% and a Zacks Rank #3.
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