Seagate Technology Public Limited Company (STX), one of the largest manufacturers of hard disk drives (HDD), is slated to report second-quarter fiscal 2015 results on Jan 26, before the opening bell. In the last quarter, it had posted a positive earnings surprise of 7.2%. Let's see how things are shaping up for this announcement.
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.
Zacks ESP: Seagate currently has an Earnings ESP of +2.94%. This is because the Most Accurate estimate of $1.40 per share is pegged higher than the Zacks Consensus Estimate of $1.36.
Zacks Rank: Seagate carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, 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 Earnings ESP of +2.94% make us confident of a positive earnings beat.
What's Driving the Better-than-Expected Earnings?
Some of the optimism related to Seagate may be attributed to its focus on the enterprise segment, where technology upgrades and cloud-related investments are on the rise. Moreover, Seagate’s cloud-based applications have generated ample customer interest.
Furthermore, 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.
Additionally, synergies from acquisitions and product innovations continue to drive growth. The company’s significant exposure to high-end corporate desktop and enterprise server markets is another positive.
Furthermore, with the advancement in technology and the increase in the volume of information that needs to be preserved, the demand for storage devices will continue to grow. The global wave of smartphones and tablets are expected to provide the storage solution technology providers ample opportunity to boost the top line, going ahead.
Other Stocks to Consider
Seagate is not the only firm looking up this earnings season. We also see likely earnings beats coming from the following technology sector peers:
Apple Inc. (AAPL), with an Earnings ESP of +0.78% and a Zacks Rank #1 (Strong Buy).
Facebook Inc. (FB), with an Earnings ESP of +9.09% and a Zacks Rank #3.
Western Digital Corp. (WDC), with an Earnings ESP of +1.43% and a Zacks Rank #3.
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