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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).

Company Description

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 Chart

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.

Xyratex Ltd  -  
ticker XRTX>

Brian Bolan is an Aggressive Growth Stock Strategist for

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