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Analyst Blog

Seagate's (STX) Q1 Earnings Beat Estimates, Revenues Miss

Posted Fri Oct 23, 11:58 am ET

by Zacks Equity Research

Seagate STX reported first-quarter fiscal 2021 non-GAAP earnings of 93 cents per share, which beat the Zacks Consensus Estimate by 6.9%. However, the figure declined 9.7% from the year-ago quarter’s figure.

Non-GAAP revenues of $2.314 billion lagged the Zacks Consensus Estimate by 0.6% and deteriorated 10.2% on a year-over-year basis.

Weakness in enterprise market offset recovery seen video and image application market and the sale of consumer drives.

In addition, management provided not-so-encouraging top and bottom-line guidance. Management anticipates second-quarter fiscal 2021 revenues of 2.55 billion (+/- 200 million). The Zacks Consensus Estimate for revenues is pegged at $2.55 billion, which indicates year-over-year decline of 5.3%

Seagate Technology PLC Price, Consensus and EPS Surprise

Seagate Technology PLC Price, Consensus and EPS Surprise

Seagate Technology PLC price-consensus-eps-surprise-chart | Seagate Technology PLC Quote

Meanwhile, non-GAAP earnings per share for fiscal second quarter is expected to be $1.10 cents (+/- 15 cents). The Zacks Consensus Estimate for earnings is pegged at $1.09 per share, which suggests deterioration of 19.3% from the year-ago quarter’s reported figure.

Following bleak fiscal first-quarter performance and a lackluster guidance, shares of Seagate were down more than 2.7% in the pre-market trading on Oct 23.

This overshadowed the company’s announcement of 3% dividend hike and addition of $3 billion to the existing share repurchases authorization.

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 114.4 exabytes of hard disk drive (HDD) storage, with an average capacity of record 4.4 terabytes (TB) per drive. This marked year-over-year improvement of 16.4% in the total HDD exabytes shipments. Sequentially, the figure declined 2.2%. Notably, average capacity improved from 4.4 TB and 2.9 TB reported in the year-ago quarter but decreased from 4.5 TB reported in the previous quarter.

The company shipped 86.6 exabytes for the mass capacity storage market (includes nearline and video and image applications as well as network-attached storage or NAS). This marked a sequential decline of 4.3% in exabytes shipments but represented an improvement of 35.5% on a year-over-year basis. Average capacity per drive decreased sequentially to 8.2 TB from 9.2 TB.

In the nearline market, the company shipped 64.3 exabytes of HDD, up 35.7% year-over-year but down 19.1% sequentially. Average capacity per nearline drive was 11.6 terabytes. This was driven by robust demand for the company’s 16 TB capacity products.

The company shipped 27.8 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices) with an average capacity of 1.8 TB. This marked a sequential improvement of 5.3% in exabytes shipments. Notably, average capacity increased 12.5% on a year over year basis.

This can be attributed to improved consumer drive sales which partially offset sluggishness in enterprise mission critical and PC market.

Notably, mass capacity and legacy verticals contributed 58% and 34% to total revenues, respectively.

Revenues by Product Group

Total HDD revenues (92.4% of revenues) decreased 10.6% year over year to $2.137 billion in the reported quarter.

Non-HDD segment revenues (7.6%), which includes enterprise data solutions, cloud systems and SSDs, declined 5.9% year over year to $177 million.

Margin Details

Non-GAAP gross margin contracted 20 basis points (bps) on a year-over-year basis to 26.5% on lower revenue base. The gross margin takes into account approximately 110 bps impact from underutilization of production capacities, favorable product mix and operational cost-related coronavirus disruption.

Driven by benefits of remote work trend and earlier restructuring endeavors, non-GAAP operating expenses were down 10.9% on a year-over-year basis to $320 million.

Nevertheless, non-GAAP income from operations were $294 million, down 10.6% from the year-ago quarter’s figure. Consequently, non-GAAP operating margin contracted 10 bps from the prior-year quarter’s reported figure to 12.7%.

Balance Sheet and Cash Flow

As of Oct 2, 2020, cash and cash equivalents were $1.66 billion compared with $1.72 billion as of Jul 3, 2020.

As of Oct 2, 2020, long-term debt (including current portion) came in at $4.163 billion compared with $4.175 billion as of Jul 3, 2020.

Cash flow from operations was $297 million compared with $388 million reported in the previous quarter.

Free cash flow for the reported quarter amounted to $186 million compared with $274 million in the last reported quarter.

In the fiscal first quarter, the company repurchased 1.5 million shares worth $68 million and paid out dividends worth $167 million.

Notably, Seagate’s board of directors approved a cash dividend of 67 cents per share, up from prior quarterly payouts of 65 cents per share. The dividend is payable on Jan 6, to shareholders as on Dec 23.

Guidance

Going ahead, management anticipates not much disruption from the COVID-19 crisis and expects increases in uptake of mass capacity storage solutions in the cloud and edge computing verticals.

Seagate also anticipates Lyve Platform and CORTX to fuel demand for its overall mass capacity storage solutions going ahead. Lyve platform is designed to assist organizations to simplify data management and security.

Notably, CORTX is an open-source object storage software that facilitates developers to gain access to mass capacity- data storage architectures. Lyve Rack is a flexible converged storage infrastructure that allows users to implement CORTX and develop mass capacity private storage cloud at lower costs.

Management also added that demand in the cloud data center vertical is likely to improve in the fiscal 2021 and this bodes well for its HDD storage solutions. Moreover, gradual recovery in the video and image applications augurs well for mass capacity storage solutions.

Seagate expects robust demand for the company’s 18-terabyte capacity products to be a key catalyst in the days ahead as production to higher volumes improves. Seagate is also optimistic about its 20-terabyte HAMR drives, which will start shipping from December 2020.

However, management also stated that sluggishness in IT spending across small to medium enterprises is likely to take another couple of quarters to recuperate which is likely to dampen demand recovery across the company’s systems solution. However, citing an IDC report, management stated that enterprise IT spending is expected to gather pace in calendar 2021.

Also, management added that the operations will continue to bear the brunt of increases in costs due to COVID-19 but will gradually decline.

Zacks Rank & Stocks to Consider

Currently, Seagate carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Qorvo QRVO, CDW Corp. CDW, and Avnet AVT. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Avnet is set to report quarterly results on Oct 28, while CDW and Qorvo are set to report quarterly earnings on Nov 2 and Nov 4, respectively.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

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Roche (RHHBY) Inks Deal to Develop Oral Coronavirus Treatment

Posted Fri Oct 23, 11:56 am ET

by Zacks Equity Research

Roche Holding AG RHHBY announced that it has entered into a collaboration agreement with Massachusetts-based privately held company Atea Pharmaceuticals, Inc. for jointly manufacturing and distributing AT-527, a potential oral treatment for hospitalized COVID-19 patients.

The investigational oral direct-acting antiviral (DAA) AT-527 is being developed by Atea and currently in phase II study for addressing hospitalized patients with moderate COVID-19 infection. A phase III study to evaluate the potential use of AT-527 in patients outside the hospital setting is expected to begin in the first quarter of 2021.

If approved, AT-527 will be distributed in the United States by Atea while Roche will be responsible for distribution in the ex-U.S. markets.

We note that Roche is evaluating its rheumatoid arthritis (RA) drug Actemra for the treatment of COVID-19 in various studies and a positive outcome will be a great boost, given the severity of the ongoing pandemic. Moreover, the company has a few diagnostics tests for SARS-CoV-2, the virus that causes the novel coronavirus disease.

It launched diagnostic products for COVID-19, namely SARS-CoV-2 rapid antigen test in the EU, cobas SARS-CoV-2 & influenza A/B test for use on the cobas 6800/8800 System, cobas SARS-CoV-2 & influenza A/B test on the cobas Liat System in urgent and emergency care settings and Elecsys AntiSARS-CoV-2 S antibody test for the markets accepting the CE Mark.

Roche also entered into a partnership deal with Regeneron Pharmaceuticals for its new antiviral antibody cocktail to address COVID-19. Initial data showed that the REGNCOV2 antibody cocktail reduced viral levels and improved symptoms in non-hospitalized COVID-19 patients.

Currently, there are no FDA-approved treatments for the severe illness caused by SARS-CoV-2. The pharma/biotech sector is racing against time to develop treatments and vaccines to cure the contagion.

Eli Lilly LLY recently submitted an initial request to the FDA for granting an Emergency Use Authorization (EUA) to its antibody therapy candidate LYCoV555 as a monotherapy for the treatment of high-risk patients who were recently diagnosed with mild-to-moderate COVID-19.

Of late, Vir Biotechnology VIR and GlaxoSmithKline’s GSK investigational monoclonal antibody VIR-7831 entered the phase III portion for the early treatment of COVID-19 in patients who are at high risk of hospitalization.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

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Xcel Energy (XEL) Rides on Investments, Targets Clean Energy

Posted Fri Oct 23, 11:53 am ET

by Zacks Equity Research

Xcel Energy’s XEL investments in enhancing its clean energy generation capability and the ongoing additions to its existing natural gas and electric customers are key catalysts. Also, continuous investments in infrastructure-related projects will benefit the utility in the future.

The Zacks Consensus Estimate for 2020 earnings is pegged at $2.77 per share, indicating growth of 4.92% from the year-ago reported figure. Additionally, the company’s long-term (three-five years) earnings growth rate stands at 5.81%.

Tailwinds

Xcel Energy continues to invest in its utility assets like transmission, distribution, electric generation and renewable projects for providing its customers with reliable services and effectively meet rising electricity demand. Notably, the utility expects long-term earnings growth in the range 5-7% range. Backed by proper operational management, the company anticipates its business and maintenance expenses to decline 4-5% in 2020, which in turn, will offset the negative impact of COVID-19.

It is also focusing on transition to clean energy. In 2019, the utility's subsidiary NSP-Minnesota filed its Minnesota resource plan, which runs through 2034. Per this plan, Xcel Energy will achieve 80% carbon-emission reduction by 2030 and 100% carbon-free electricity by 2050.

Other electric utilities are also adopting measures to supply clean and reliable energy to its customers. Some of the companies, namely Duke Energy DUK, DTE Energy DTE and Alliant Energy LNT are planning to provide absolute clean energy by 2050.

Moreover, the Mankato Energy Center’s divestiture and equity issue increased the company’s liquidity level to $4.5 billion. Such a solid cash position will be sufficient to meet its current debt obligations. The company’s strong cash flow generation capacity will enable it to raise its dividend at regular intervals.

Headwinds

However, Xcel Energy’s natural gas transmission and distribution operations are exposed to several risks including leaks and mechanical setbacks impacting normal operations. Also, the company’s business activities are susceptible to cyber security hazards, which might induce a loss of valuable data. Further, it is subject to comprehensive environmental guidelines, which could flare up operating costs.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Core Labs' (CLB) Q3 Earnings Beat Estimates, Revenues Miss Mark

Posted Fri Oct 23, 11:46 am ET

by Zacks Equity Research

Core Laboratories N.V. CLB recently reported third-quarter 2020 results wherein adjusted earnings of 16 cents a share came ahead of the Zacks Consensus Estimate of 14 cents. This outperformance is attributable to lower year-over-year operating expenses, which declined to $94.1 million in the third quarter from $142 million in the year-ago period. However, the bottom line declined from the year-ago quarter’s earnings of 50 cents per share. This downside was caused by a drop in both international product sales and lower activity on international projects.

The oilfield service provider’s adjusted revenues of $105.38 million missed the Zacks Consensus Estimate of $109 million. Moreover, the top line fell from the year-ago quarter’s revenues of $173.2 million.

Segmental Performance

Reservoir Description: Revenues decreased 26.7% to $80.1 million from $109.3 million in third-quarter 2019, thanks to operational disturbances related to the coronavirus pandemic. Moreover, adjusted operating income fell from $18.8 million in the year-ago period to $11 million. Further, operating margin of 15% was lower than the prior-year quarter’s 18%

Production Enhancement: Revenues were $25.3 million compared with $63.9 million in third-quarter 2019. Segmental operating loss was $0.3 million in the quarter against the year-ago quarter’s income of $115 million. This segmental underperformance was due to reduced international product shipments resulting from coronavirus-induced adversities and weather events in the Gulf of Mexico.

Core Laboratories N.V. Price, Consensus and EPS Surprise

Core Laboratories N.V. Price, Consensus and EPS Surprise

Core Laboratories N.V. price-consensus-eps-surprise-chart | Core Laboratories N.V. Quote

Financials

As of Sep 30, 2020, Core Labs had cash and cash equivalents worth $15.1 million and long-term debt (including lease obligations) of $189.6 million. The company’s debt-to-capitalization was 72.55%.

In the reported quarter, Core Labs generated $20.7 million in operating cash and its capital expenditure totaled $2.2 million. This, in turn, led to an $18.5-million free cash flow (FCF) generation. Markedly, this is the 76th consecutive quarter of the company’s FCF recognition.

View

Considering the prevalent business uncertainty emanating from the coronavirus outbreak, the company was unable to provide a quantitative guidance for the upcoming quarters but issues an improving outlook for fourth-quarter U.S. land activity and international product shipments. Core Labs anticipates generate a positive FCF in the December quarter of 2020.

Performance of Other Energy Players

Among other players in the oilfield services industry that already reported third-quarter earnings, the bottom-line results of Schlumberger SLB and Halliburton HAL beat the respective Zacks Consensus Estimate by 23.1% and 37.5% while that of TechnipFMC FTI missed the mark by 20%.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

AptarGroup (ATR) Suffers From Weak End Markets Amid Pandemic

Posted Fri Oct 23, 11:32 am ET

by Zacks Equity Research

On Oct 22, 2020, we issued an updated research report on AptarGroup, Inc. ATR. The company is anticipated to bear the impact of the coronavirus pandemic on its end markets, particularly in the Beauty + Home and Food + Beverage segments, until the situation stabilizes. Nevertheless, gain from business-transformation, product innovation and acquisitions will drive growth in the days ahead.

AptarGroup is a global supplier of a broad range of innovative dispensing, sealing and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. The Beauty + Home segment sells dispensing systems primarily to the beauty, personal care and home care markets, and contributed around 47% to total sales in fiscal 2019. Notably, reduced orders from customers providing prestige beauty products this year owing to the COVID-19 crisis will continue hurting the segment. Beauty products are sold via duty free travel and retail stores. Consequently, the restrictions on air travel has impacted the beauty market. Also, many beauty retailers have shut down in response to government mandates to stem the spread of the coronavirus.

AptarGroup’s peer, Silgan Holdings Inc. SLGN, has also been impacted by weakness in certain beauty products owing to shift in consumers’ buying patterns as a result of the coronavirus crisis.  Further, the company’s exposure to the fragrance market following its acquisition of the dispensing business, Albéa Group, remains a concern as the fragrance market is heavily retail and travel based.

AptarGroup’s Food + Beverage segment, which accounted for 15% of the company’s revenues in 2019, sells dispensing closures and non-dispensing closures, spray pumps and aerosol valves to the food and beverage markets. The segment will be persistently affected by decrease in food service and on-the-go beverage closure sales due to the COVID-19 crisis.

However, the company’s Pharma segment (38% of fiscal 2019 revenues) is witnessing sales growth across each end market with especially strong improvement in the injectables and active packaging businesses. This is likely to persist amid the coronavirus pandemic. Notably, the segment has identified over 150 potential projects as a result of the COVID-19 pandemic and continues to receive inquiries from the healthcare industry on an almost-daily basis. However, these gains are likely to be negated by the abovementioned headwinds.

Also, in the wake of the ongoing uncertainty related to the COVID-19, AptarGroup like the other players in the industry, which includes Sealed Air Corporation SEE, Greif Inc. GEF and Silgan, has been undertaking several cost control measures that include reducing temporary labor headcount, wage reductions, elimination of business travel and curtailment of discretionary spending. This will help sustain margins despite low volumes.

AptarGroup now projects third-quarter 2020 adjusted earnings per share between 80 cents and 88 cents. The mid-point of the guided range reflects a year-over-year decline of 10% from the prior-year quarter.

However, going forward, AptarGroup is focused on growing business-transformation plan that will help drive the top line, boost operational excellence, enhance approach to innovation and improve organizational effectiveness. It also remains committed to business expansion through acquisitions to broaden the scope of technologies, geographic presence and product offerings. Continued focus on bringing innovative product launches will also provide it with a competitive edge.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Smucker (SJM) Looks Appetizing on Coronavirus-Induced Demand

Posted Fri Oct 23, 11:31 am ET

by Zacks Equity Research

The J. M. Smucker Company SJM is benefiting from its focus on e-commerce business along with its lucrative buyouts. Also, the company’s robust cost-saving efforts are yielding. Apart from these, it is witnessing rising demand owing to higher at-home consumption amid the coronavirus outbreak.

Let’s delve deeper.

Burgeoning Demand & Impressive Outlook

Burgeoning demand amid coronavirus pandemic bolstered Smucker’s first-quarter fiscal 2021 results with the top and the bottom line advancing year over year as well as beating the Zacks Consensus Estimate. Notably, adjusted earnings per share (EPS) surged 50% driven by higher sales volumes, increased profit margins as well as reduced selling, distribution and administrative expenses. Sales rose almost 11% on the back of favorable volume/mix in all retail businesses stemming from higher at-home consumption amid COVID-19.

We note that several other food companies like Flowers Foods FLO, General Mills GIS and Conagra Brands CAG are also gaining on higher coronavirus-induced demand.

Meanwhile Smucker’s impressive first-quarter results encouraged it to raise its fiscal 2021 net sales and adjusted EPS outlook. The company expects net sales growth in the range of flat to 1% growth. Earlier it anticipated the metric to decline 1-2% year over year. The top-line view reflects escalated at-home consumption as well as re-stocking of retailer inventory in the fiscal first quarter. Adjusted EPS for fiscal 2021 is anticipated in the range of $8.20-$8.60. Prior to this, management expected adjusted EPS in the band of $7.90-$8.30.

Other Factors Driving Smucker’s Performance

Growing trend of online customers has urged Smucker to take notice of its e-commerce channel to boost sales. In fact, e-commerce is a fast-growing retail channel of the company. In the digital realm, pet business has been steadily expanding. During the fiscal first quarter, overall e-commerce sales have surged 70% year over year. Management expects to witness consistent strength in the e-commerce channel in the forthcoming periods as consumers adapt to online shopping amid the pandemic. Moreover, the company is utilizing the digital platform to enhance consumer engagement.

Further, Smucker actively pursues strategic acquisitions to boost growth. Notably, the company’s acquisition of Ainsworth (completed in May 2018) is driving performance in the U.S. Retail Pet Foods category. Other noteworthy acquisitions of the company include; Big Heart Pet Brand (pet food maker) and Sahale Snacks (branded nut and fruit snacks maker) among others. These acquisitions have added iconic brands to the company’s portfolio and strengthened its presence.

Also, Smucker formed key partnerships with quite a few coffee companies. Its agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc to manufacture and sell the K-Cup category of products are noteworthy.

Will Hurdles be Countered?

While coronavirus-led increased stay-at-home trends boosted Smucker’s retail business, the same dealt a blow to its International and Away From Home. Segmental net sales declined 9% year over year in the fiscal first quarter. Apart from this, lower net price realization coupled with escalated costs is a concern. Also, Smucker is vulnerable to unfavorable foreign currency translations owing to its exposure to international markets.

Nonetheless, the aforementioned upsides along with robust cost-saving efforts are likely to help Smucker keep its growth story going.

Notably, the company resorts to cost savings to fuel investments and enhance operating performance. Impressively, adjusted gross profit increased 13% and adjusted gross margin expanded 80 basis points (bps) in the fiscal first quarter. Also, adjusted operating income increased 39%, while adjusted operating margin expanded 420 bps.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Factors to Note Ahead of Western Digital's (WDC) Q1 Earnings

Posted Fri Oct 23, 11:19 am ET

by Zacks Equity Research

Western Digital WDC is scheduled to report first-quarter fiscal 2021 results on Oct 28.

For first-quarter fiscal 2021, The company projects non-GAAP earnings between 45 cents and 65 cents per share. The consensus mark for earnings is pegged at 54 cents per share that suggests an improvement of 58.8% from the year-ago quarter’s reported figure. Notably, the estimates have been stable in the past 30 days.

Western Digital expects revenues in the range of $3.7-$3.9 billion in the fiscal first quarter. The Zacks Consensus Estimate for revenues is currently pegged at $3.83 billion that indicates a decline of 5.1% from the year-ago quarter’s reported figure.

In fourth-quarter conference call, management noted that it expects relaxing of shelter-in-place guidelines and increase in curbside pickup facilities to facilitate improvement in demand at the brick and mortar locations.

Western Digital Corporation Price and EPS Surprise

 

Western Digital Corporation Price and EPS Surprise

Western Digital Corporation price-eps-surprise | Western Digital Corporation Quote

 

However, management stated that it expects to face disruptions in supply chain owing to coronavirus crisis. Also, production at manufacturing facilities might be negatively impacted due to the pandemic.

Notably, the company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, while missing the same once. It has a trailing four-quarter earnings surprise of 7.39%, on average.

Let’s see how things have shaped up prior to this announcement.

Factors Likely to Have Influenced Q1

Increasing PC shipments triggered by coronavirus crisis induced work-from-home wave and online schooling wave is likely to have benefited Western Digital’s fiscal first-quarter performance. Per Gartner’s preliminary data, PC shipments in third-quarter of calendar 2020 improved 3.6% year over year to 71.4 million units.

Rising PC shipments might have driven sales of the company’s solid state drives (SSDs) on improving demand from notebooks and video game consoles. Also, incremental adoption of latest high-capacity hard disk drives (HDDs) products with robust storage capabilities is likely to have had positively impacted Client Devices’ segment’s fiscal first-quarter performance.

Notably, the Zacks Consensus Estimate for Client Devices revenues for the fiscal first quarter is currently pegged at $1.697 billion, which suggests growth of 5% from the year-ago quarter’s reported figure.

Cloud and hyperscale customers have been witnessing solid demand driven by surge in data consumption as people are increasingly working and studying from home due to the ongoing coronavirus pandemic.

This has led to a spike in bandwidth and latency issues, which created the need for efficient storage infrastructure at the edge. This, in turn, is anticipated to have bolstered demand for Western Digital data center solutions’ portfolio, which bodes well for fiscal first quarter top line. This includes products like NVMe SSDs, Ultrastar DC SN340 and Ultrastar DC SN640.

Additionally, growing demand for the company’s high capacity drives and 16 and 18-terabyte energy assisted drives is anticipated to have benefited the to-be-reported quarter’s performance.

However, weakness in capacity enterprise HDD sales is estimated to have negatively impacted the top-line growth. Further, HDD business is expected to stay under pressured due to ongoing transition to SSDs. The Zacks Consensus Estimate for HDD revenues for the fiscal first quarter is pegged at $1.801 billion that implies a decline of 25.2% on a year-over-year basis.

Also, coronavirus induced weakness across small and medium businesses is likely to have limited growth. Also, higher expenditure on product innovation, amid stiff competition from Seagate STX, is likely to have exerted pressure on margins during the quarter under review.

The consensus for revenues from Data Center Devices Solutions stands at $1.359 billion that indicates a decline of 11.3% from the year-ago quarter’s reported figure.

Furthermore, the Zacks Consensus Estimate for Client Solutions revenues for the to-be-reported quarter is currently pegged at $758 million, which suggests deterioration of 15% from the prior-year quarter’s reported figure.

Markedly, incremental adoption of latest flash solutions ahead of the upcoming launches of Xbox Series X and PlayStation 5 gaming consoles over the holiday season is expected to have contributed to the Flash revenue numbers. Also, continued momentum in demand for Enterprise SSDs is expected to have contributed to top-line growth for Flash portfolio in the to-be-reported quarter.

The Zacks Consensus estimate for Flash revenues for the fiscal first quarter stands at $2.049 billion, representing an improvement of 25.6% over the prior year quarter figure.

Key Developments in Q1

In the fiscal first quarter of 2021, Western Digital expanded its HDD technology capabilities for data center solutions. The company’s WD Gold offerings featured 16TB and 18TB CMR HDD capacities. It also launched Ultrastar JBOD platforms as well as a new Ultrastar hybrid storage server featuring Ultrastar 16TB and 18TB CMR HDDs.

The company rolled out next-generation WD brand My Passport SSD, and added two new portable SSDs pertaining to its SanDisk portfolio –– SanDisk Extreme and SanDisk Extreme PRO.

It also introduced two new storage solutions — 18TB surveillance HDD and 1 TB SC QD101 microSD card — under its WD Purple storage solutions banner.

The company also announced splitting of its flash and HDD business in two separate segments as a part of its diversification strategy to streamline operations and unlock shareholders’ value. Management is anticipated to divulge more details on the split in the upcoming earnings conference.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Western Digital this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Western Digital has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold), which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider as our proven model shows that these have the right mix of elements to beat estimates this time:

Avnet AVT has an Earnings ESP of +39.13% and currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard ATVI currently has an Earnings ESP of +3.29% and a Zacks Rank of 2.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Fastly's (FSLY) Q3 Earnings to Hurt from Lower TikTok Usage

Posted Fri Oct 23, 11:01 am ET

by Aniruddha Ganguly

Fastly FSLY is set to release third-quarter 2020 results on Oct 28.

Markedly, on Oct 15, the company released its preliminary results which were disappointing. Fastly’s top-line growth was primarily affected by lower usage of its platform by its largest customer Bytedance, the operator of TikTok.

For the quarter, the company now expects revenues between $70 million and $71 million compared with its previous guidance of $73.5-$75.5 million, provided on Aug 5.

Moreover, Fastly withdrew its previously provided guidance of an adjusted loss of 1 cent per share.

The Zacks Consensus Estimate is currently pegged at a loss of 1 cent per share, which has widened by a penny over the past 30 days. The company had reported a loss of 9 cents per share in the year-ago quarter.

Moreover, the consensus mark for the top line is currently pegged at $70.6 million, implying 41.8% growth from the figure reported in the year-ago quarter.

Markedly, Fastly’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 101.6%.

 

Fastly, Inc. Price and EPS Surprise

Fastly, Inc. Price and EPS Surprise

Fastly, Inc. price-eps-surprise | Fastly, Inc. Quote

 

Let’s see how things shaped up prior to this announcement.

Factors to Note

Fastly’s third-quarter results are expected to have suffered from lower usage by not only TikTok but also several other customers. Notably, TikTok accounted for 12% of Fastly’s revenues for the trailing six months ended Jun 30, 2020.

Markedly, TikTok suffered from political uncertainty after President Donald Trump threatened to ban it citing national security concerns.

Although lower usage has hurt Fastly’s growth in the to-be-reported quarter, demand for edge computing solutions is expected to have remain robust.

What Our Model Indicates

Per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Fastlyhas an Earnings ESP of -300% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks to Consider

Here are a few companies besides Fastly worth considering as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

AMETEK AME has an Earnings ESP of +0.83% and is #2 Ranked. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alphabet GOOGL has an Earnings ESP of +7.40% and a Zacks Rank #2.

Apple AAPL has an Earnings ESP of +2.97% and is #3 Ranked.

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Costco (COST) Thrives on Stellar Comps Show & E-Commerce

Posted Fri Oct 23, 10:55 am ET

by Zacks Equity Research

Costco Wholesale Corporation’s COST growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Thanks to its status of “essential retailers,” this Issaquah, WA-based company has been benefiting from coronavirus-induced spike in demand. Cumulatively, these factors have been aiding this operator of membership warehouses in registering impressive comparable sales run.

In fact, the company’s strategy to sell products at discounted prices has helped it expand customer base. Under the current circumstances, people are exhibiting a preference for discount stores for essentials or other daily purchases. Apparently, Costco has emerged as viable option for them. The company’s differentiated product range resonates well with customers’ spending habits.

A Sneak Peek into Key Metrics

Costco registered an increase of 16.9% in net sales during the month of September. This followed an improvement of 15%, 14.1% and 11.1% in the months of August, July and June, respectively. Again, comparable sales for the month of September rose 15.5%. This followed an increase of 13.2% in both August and July, and 11.5% in June.

Undoubtedly, Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or at stores. Consumers’ increased shift to online purchasing owing to the coronavirus outbreak seems to have worked in favor of the company.

The company’s e-commerce sales have been showcasing a sharp increase owing to the rising stay-at-home trend to maintain social distance amid the pandemic. We note that e-commerce comparable sales soared 90.3% during the month of September. This followed an increase of 101.9%, 75.3% and 85.8% in the months of August, July and June, respectively. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

To drive online sales, the company launched CostcoGrocery to deliver non-perishable items to buyers’ homes. Its partnership with Instacart facilitates same-day delivery of groceries to shoppers. The company acquired Innovel Solutions, which is a leading provider of third-party end-to-end logistics solutions. The buyout bolsters Costco’s e-commerce capabilities and facilitates sales of "big and bulky" items.

Bottom Line

Costco continues to be one of the dominant warehouse retailers based on the breadth and quality of merchandise offered. It is also focused on ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Dollar General DG and Target TGT. We believe that the company’s business model and commitment toward opening membership warehouses will continue to drive traffic.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Kinross (KGC) Announces Upbeat Long-Term Production View

Posted Fri Oct 23, 10:36 am ET

by Zacks Equity Research

Kinross Gold Corporation KGC recently issued its long-term production view. The company expects to produce around 2.5 million gold equivalent ounces (GEO) per annum on an average from 2020-to-2029, which will be mainly driven by promising organic opportunities across its global portfolio.

In September, the company stated that it expects to increase gold production from 2021 to 2023 by 20%, including 2.4 million GEO in 2021, 2.7 million GEO in 2022 and 2.9 million GEO in 2023. The company also expects overall cost of sales per ounce to decline over its three-year growth profile.

Kinross’ growth production outlook from 2021 to 2023 is based on expected additional ounces from higher planned production at Kupol and mine-life extension at Chirano. It is also likely to gain from expected enhancements at the Fort Knox, including accelerating production at the Gilmore project. Also, the company expects persistent outperformance at Paracatu with improvements in throughput and higher expected production from the north area of Bald Mountain.

In September, the company reinstated its 2020 guidance that was issued on Feb 12, 2020. Notably, Kinross revoked its full-year guidance in April due to the global uncertainties associated with the coronavirus pandemic.

Kinross, which is among the prominent gold mining companies along with Newmont Corporation NEM, Barrick Gold Corporation GOLD and Agnico Eagle Mines Limited AEM, continues to expect production of 2.4 million (+/-5%) GEOs for 2020. All-in sustaining costs are forecast to be $970 (+/-5%) per GEOs for 2020. The company also expects current-year production cost of sales of $720 (+/-5%) per GEOs.  

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

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