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Seagate (STX) to Report Q3 Earnings: What is in the Cards?

Zacks Equity Research

Seagate Technology plc STX is set to report third-quarter fiscal 2020 earnings on Apr 22.

The company anticipates third-quarter fiscal 2020 non-GAAP earnings to be $1.35 (+/- 7%) per share.

The Zacks Consensus Estimate for earnings is pegged at $1.29 per share, suggesting an improvement of 55.4% from the year-ago reported figure. Notably, estimates have declined 4.4% over the past 30 days.

Seagate expects third-quarter fiscal 2020 revenues to be 2.7 billion (+/- 7%). Management is banking on growing clout of high capacity nearline drives and strength in 16-terabyte to drive revenues and profitability.

The Zacks Consensus Estimate for revenues is pegged at $2.60 billion, indicating an improvement of 12.4% from the year-ago quarter.

Notably, the company beat the Zacks Consensus Estimate for earnings in the trailing four quarters by 6.24%, on average.

Seagate Technology PLC Price and EPS Surprise

Seagate Technology PLC Price and EPS Surprise
Seagate Technology PLC Price and EPS Surprise

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

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Factors at Play

Secular trend in data growth is likely to have driven demand for Seagate’s high storage capacity offerings, primarily the latest 16-terabyte products. This, in turn, is likely to have benefited the fiscal third-quarter performance.

Moreover, the company is expected to have gained from increasing traction for mass storage solutions, primarily driven by data growth at the edge and in the cloud, across its edge and enterprise end markets.

Notably, coronavirus-led work-from-home wave is likely to have bolstered sales of solid state drives or SSDs, which in turn is expected to have driven revenues.

Further, stay-at-home trends are likely to have spiked sales of the company’s gaming SSDs. Markedly, during the quarter under review, Seagate added the FireCuda Gaming SSD and BarraCuda Fast SSD to its portfolio of high-performance storage solutions.

However, uncertainty in decline in NAND flash pricing owing to coronavirus-led supply chain constraints and weakening demand is likely to have affected the fiscal third-quarter performance.

Notably, shares of Seagate are down 14.9% year to date, compared with industry’s decline of 27.4%.



Further, deteriorating trend in PC shipments in first quarter of calendar year 2020, is likely to have impacted HDD sales. This, in turn, is likely to get reflected in the fiscal third-quarter results.

Notably, PCs remain the biggest users of HDDs, and Seagate still derives the bulk of its revenues from these devices. Per Gartner’s preliminary data, PC shipments in first-quarter 2020, declined 12.3% year over year to 51.6 million units. Going by the IDC report, shipments were down 9.8% on a year-over-year basis and totaled 53.2 million in the period under review. A declining trend in PC shipments negatively impacts business prospects of Seagate, which continues to depend substantially on PC sales. This is likely to have weighed on the fiscal third-quarter performance.

Moreover, increasing expenditure on product innovation and development amid stiff competition in the storage market from Western Digital WDC and other peers, is likely to have impacted profitability in the fiscal third quarter.

What Our Model Says

According to the Zacks model, a 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 -1.64% 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 a couple of stocks that you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Limelight Networks, Inc. LLNW has an Earnings ESP of +100.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Citrix Systems, Inc. CTXS has an Earnings ESP of +0.17% and a Zacks Rank #2.

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Citrix Systems, Inc. (CTXS) : Free Stock Analysis Report
 
Seagate Technology PLC (STX) : Free Stock Analysis Report
 
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