Share price of Seagate Technology PLC (STX – Free Report) dropped to a new 52-week low of $30.60 yesterday, eventually closing a tad bit higher at $31.01.
The underperformance can be attributed to the company’s disappointing fourth-quarter fiscal 2017 results. Non-GAAP earnings plunged 41% on a sequential basis, primarily due to a 10% decline in revenues. Revenues amounted to $2.41 billion, which missed the Zacks Consensus Estimate of $2.55 billion.
We note that this pulled down current year earnings estimates over the last 30 days. The Zacks Consensus Estimate for fiscal 2018 declined 18.04% to $3.86 over the last 30 days. For fiscal 2019, the consensus estimate declined 11.9% to $4.07.
Seagate has lost 16.4% of its value year to date against 11.6% growth of its industry.
What’s Dragging it Down?
The decline in the top line was primarily due to sluggish revenues from enterprise storage customers. This includes traditional OEM nearline and mission critical demand, China CSP nearline demand, and the company’s own Cloud Storage Systems business.
Moreover, certain intra quarter channel inventory management issues affected the surveillance and NAS markets. Revenues fell 5% short from expectations and management attributed this to the above-mentioned factors.
Seagate Technology PLC Revenue (TTM)
Seagate Technology PLC Revenue (TTM) | Seagate Technology PLC Quote
Additionally, due to operational issues in the Cloud Systems and Silicon Group (CSSG) division and unfavorable enterprise and surveillance HDD portfolio mix, margins were under pressure. Management also noted that the company is not heading toward achieving the previous guidance of non-GAAP earnings per share of $4.50 for 2017.
We believe, all these coupled with intensifying competition in the market post the merger of Western Digital (WDC – Free Report) and SanDisk are headwinds for the company. Further, declining demand in the PC market as evident from Gartner and IDC’s recently released worldwide PC shipments data is a major concern for Seagate.
Zacks Rank and Stocks to Consider
Seagate has a Zacks Rank #3 (Hold).
Applied Materials, Inc. (AMAT – Free Report) and Applied Optoelectronics (AAOI – Free Report) are two top-ranked stocks worth considering in the broader sector. Both of them sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here
The long-term earnings growth rate for Applied Materials and Applied Optoelectronics is projected to be 16.6% and 17.5% respectively.
