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Value

Xyratex Limited (XRTX) is a cheap tech stock. Plain and simple. It is trading at just 5x forward earnings.

It is also a Zacks #1 Rank (strong buy) stock.

What's not to like?

Strong Customer Demand Boosted the Fiscal First Quarter

Xyratex is in a hot area of technology: storage.

The British-based company provides enterprise class data storage subsystems and network technology to customers who are OEM (original equipment manufacturers) and disk drive manufacturers.

Xyratex has two segments: network storage solutions and storage infrastructure.

Revenue jumped 73.5% to $319 million from $183.9 million in the year ago quarter. The strength of the recovery in demand seemed to surprise even the company.

"We increased revenues by more than 30% over the prior quarter, and the results represent a very dramatic turnaround from the position faced 12 months ago," said Steve Barber, CEO.

"Given the strong demand and actions needed to secure additional supply of components, I felt we did a good job of executing to our customers' requirements," he added.

Both segments saw an increase in the quarter, with network storage solutions sales climbing 63.5% and storage infrastructure sales gaining a whopping 164%.

Gross profit margin also rose in both segments.

Bullish Outlook for the Second Quarter

Technology is clearly making a strong recovery and taking Xyratex along for the ride.

Xyratex is forecasting a strong fiscal second quarter with revenue climbing to the range of $400 million to $460 million.

How big is this revenue forecast?

Check out the fiscal second quarter revenue for the prior 4 years:

2009 revenue: $194.7 million
2008 revenue: $266.5 million
2007 revenue: $213 million
2006 revenue: $288.9 million

With the exception of 2006, the revenue guidance is nearly double the revenue of the fiscal second quarter for any of the prior years.

Remember, the 2006 and 2007 years would have been considered "good" years in the technology sector and there was no global recession.

The fiscal second quarter earnings per share guidance has also been boosted. Xyratex expects EPS between $1.10 and $1.63 per share.

Zacks Consensus Estimates Soaring

How could analysts not like what they heard from the company on Mar 31?

4 estimates have moved higher in the last 30 days as the second quarter Zacks Consensus has jumped to $1.26 from 68 cents per share.

Similarly, fiscal 2010 consensus estimates have also taken off. 2010 estimates have jumped by 56.3% in the last month to $3.58 from $2.29 per share. Like the quarter, 4 estimates also moved higher in that time.

Xyratex has surprised 3 out of the last 4 quarters by an average of 46.4%.

Value Fundamentals

Despite the good story surrounding the storage sector, and Xyratex's stock surging off its February 2009 lows, Xyratex still has a lot of value.

It has a value price-to-book ratio of 2.2, which is also under the industry average of 2.4.

The company also has a solid 5-year average return on equity (ROE) of 15.4%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

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