Is Seagate in Trouble this Quarter?

Photo Credit: Magnus Hagdorn

Seagate Technology PLC (STX) Information Technology - Computers & Peripherals | Reports April 29, Before Market Opens

Key Takeaways

• The Estimize community is calling for EPS of $0.54 on $2.66 billion in revenue, 14 cents higher than Wall Street on the bottom line and $60 million on top
• Weakness in the PC industry has put pressure on hard disk and solid state drive sales
• Seagate’s propensity to cut costs while still offering a generous dividend yield should appease investors until it turns itself around.
• What are you expecting for STX? Get your estimate in here!

The recent volatility in the PC industry has proven to be quite detrimental for Seagate Technologies. Seagate, along with Western Digital, is the industry leader in hard drive and data storage solutions for personal computers. As the market views hard drives as a distant memory, the stock has slipped 53.1% in the past 12 months. Unfortunately, earnings have tracked this trend and despite a slight beat last quarter, earnings have plunged from its highs of $1.34 at the start of fiscal 2015. 

Since its last report Seagate is seeing unfavorable revisions activity with per share estimates cut 24% in the past 3 months. Consequently, the Estimize community is calling for EPS of $0.54 on $2.66 billion in revenue, 14 cents higher than Wall Street on the bottom line and $60 million on top. Compared to a year earlier, profits are predicted to decline 46% while sales could fall as much as 20%. On average, the stock does well leading up and through earnings seasons. Shares maintain a 3% gain 30 days ahead of earnings through 30 days following earnings with small ups and down in between. 

As PC sales continue to wane, Seagate has witnessed meager growth in its core hard disk and solid state drives. Physical data storage solutions are slowly being phased out in favor cloud storage. As a result, Seagate and its peers have had to discount its traditional storage units, placing pressure on earnings and margins. Thankfully, cloud storage requires data centers with massive hard drives to store its information. This should partially offset the losses Seagate is seeing in its other retail storage units. However, given Seagate’s propensity to cut costs and provide substantial dividend yields, it won’t be long before investors benefit from this stock.