Fly Intel: What to watch in data storage earnings reports - InvestingChannel

Fly Intel: What to watch in data storage earnings reports

Companies in the data storage sector are set to begin their earnings season with Seagate (STX) reporting fiscal third quarter earnings after the market close on Wednesday, April 22 with a conference call scheduled for 5:00 pm ET. Western Digital (WDC), a Seagate rival, is set to report Q3 results after the market closes on Thursday, April 30, with a conference call scheduled for 5:00 pm ET. What to watch for: 1. GUIDANCE: Along with its last report, Seagate guided for Q3 earnings per share of $1.35, plus or minus 7%, on revenue of $2.7B, plus or minus 7%. At the time, analysts were expecting the company to report Q3 EPS of $1.27 on revenue of $2.59B, but those figures have since risen to $1.30 and $2.61B, respectively. Meanwhile, Western Digital said with its last report that it expected Q3 adjusted EPS of 85c-$1.05 on revenue of $4.1B-$4.3B. At the time, analysts expected the company to report Q3 EPS of 73c on revenue of $4.06B, but those figures have since risen to 93c and $4.19B, respectively. 2. WELLS FARGO: In a research note sent to investors last month, Wells Fargo analyst Aaron Rakers said it was impossible to know what the fundamental impact of COVID-19 would be across his coverage universe in the IT Hardware & Communications Networking space, adding that while the thought at the time it was important to consider that many companies are materially different today than they were during the 2008-2009 financial crisis, most of his discussions pointed to the fundamental deterioration of this timeframe as a guide post. Rakers at the time said that Western Digital had fallen too far as checks pointed to ongoing hyperscale demand, and he lowered his price target on Western Digital to $60 from $85 and cut his price target on Seagate to $50 from $52. 3. DEUTSCHE BANK: On the other hand, Deutsche Bank analyst Sidney Ho earlier this month named Western Digital his favorite COVID-19 recovery idea, saying that since the pandemic began, Western Digital’s share price “significantly underperformed” the semiconductor index and its closest U.S. memory/storage peers Micron Technology (MU) and Seagate. The analyst noted that Western Digital’s risk/reward at that time’s valuation was “highly attractive” even if there are downside risks to estimates. 4. LOOP CAPITAL: Yesterday, Loop Capital analyst Ananda Baruah maintained his Buy rating and $70 price target on Seagate, saying that he sees an attractive gross margin and earnings potential with a constructive opportunity for the June quarter. The analyst noted that PC businesses may be impacted by the September quarter, but for now, order plans for the June quarter continue to be “very solid with good visibility.” Baruah also highlighted potential Seagate benefits coming from a quicker shift to Cloud-based applications as a result of COVID-19, with the company potentially emerging as an attractive structural play on Cloud acceleration. 5. PC SHIPMENTS: The worldwide traditional PC market, comprised of desktops, notebooks, and workstations, fell 9.8% year over year in the first quarter of 2020, reaching a total of 53.2 million shipments according to preliminary results from the International Data Corporation Worldwide Quarterly Personal Computing Device Tracker released last week. IDC noted that the stark decline after a year of growth in 2019 was the result of reduced supply due to the outbreak of COVID-19 in China, the world’s largest supplier of PCs. While production capacity in January was pretty much on par with past years, the extended closure of factories in February and the slow resumption of manufacturing along with difficulties in logistics and labor towards the end of the quarter led to a reduction of supply. Meanwhile, demand rose during the quarter as many employees needed to upgrade their PCs to work from home and consumers sought gaming PCs to keep themselves entertained, according to the IDC.