Xyratex Ltd. (XRTX) has seen some good earnings surprises and fights off the pressure of the Thailand floods. The stock is a
Zacks #1 Rank (Strong Buy).
Xyratex provides modular enterprise-class data storage
subsystems and hard disk drive capital equipment for
original equipment manufacturers (OEM), and hard disk drive
manufacturers and their component suppliers in North
America, Asia, and Europe. It operates in two segments,
Networked Storage Solutions and Storage Infrastructure.
Earnings Estimates Increase
Earnings estimates for 2012 have moved around quite a bit
over the last year. In August of 2011, analysts weren't as
positive on XRTX as the Zacks Consensus Estimate moved as
low as $0.75. Since that time, there have been some
revisions and the outlook has improved. The current Zacks
Consensus Estimate is calling for EPS of $1.46 for 2012.
The Zacks Consensus Estimate for 2013 has seen some similar
moves. In September of 2011, the outlook wasn't as
positive, and analysts were expecting earnings of $1.02.
The recent increase in expectations translated to a new
Zacks Consensus Estimate of $1.39.
Flooding in Thailand
Earlier floods in Thailand have wreaked havoc on the hard
disk drive industry. XRTX was not immune to this idea as
many analysts took down estimates and expectations as the
supply chain was compromised.
Two Big Earnings Surprises
The last two earnings reports are the kind that aggressive
growth investors like to see. The August 2011 quarter saw
EPS come in 100% ahead of estimates. The company reported
earnings of $0.32 or a full $0.16 ahead of the $0.16 Zacks
Consensus Estimate. The November quarter, reported in the
beginning of January of 2012, saw a bigger beat. In
reporting $0.70 per share of earnings, the company beat
expectations by 133% coming in $0.40 ahead of the $0.30
expectation. The caveats on these massive beats are that
there are only three analysts covering the stock and the
company missed in expectations in the May 2011 quarter.
Aggressive growth investors might be confused for value
investors when looking at the valuations metrics for XRTX.
The company trades at a discount to the industry for both
trailing and forward PE. At 15x, the PE is just below the
industry average of 17x trailing earnings. What really
stands out is the price to book and price to sales.
The 1.2x price to book is well below the industry average of
4x and the 0.3x price to sales is also well below the 2x industry
average for the metric. Both of those metrics could make
possible suitors interested in at least kicking the tires
for a potential acquisition.
The recent price action shows some dramatic growth over the
last few months, as concerns over the floods abated and
earnings expectations increased. Growth in sales and M&A
speculation may take this stock even higher in the future.
Brian Bolan is an Aggressive Growth Stock Strategist
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