We expect storage solutions provider Seagate Technology plc (STX) to beat expectations when it reports second-quarter 2014 results on Jan 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: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate ($1.42 per share) and the Zacks Consensus Estimate ($1.40 per share), stands at +1.43%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #2 (Buy): 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 #2 and +1.43% 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 upcoming quarter. Moreover, Seagate is coming up with customized products to cater to new customers and gain traction in the storage markets.
We believe the secular growth of digital data, modest growth in the total addressable market and higher demand for storage are expected to drive the 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.
Moreover, it is noteworthy that Seagate has surpassed the Zacks Consensus Estimate in the last three out of the four quarters with an average positive surprise of 3.5%.
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:
Advance Auto Parts Inc. (AAP), Earnings ESP of +2.53% and a Zacks Rank #1 (Strong Buy)
Affymetrix Inc. (AFFX), Earnings ESP of +33.33% and a Zacks Rank #1.
Baidu, Inc. (BIDU), Earnings ESP of +7.09% and a Zacks Rank #1.
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