On The Fly: What to watch in data storage earnings reports

Companies in the data storage sector are set to begin their earnings season with Seagate Technology (STX) reporting fiscal third quarter earnings before the market open on Wednesday, April 26 with a conference call scheduled for 9:00 am ET. Western Digital (WDC), a Seagate rival, is set to report Q3 after the market close Thursday, April 27 with a conference call scheduled for 5:30 pm ET. What to watch for: 1. EPS, REVENUE CONSENSUS VIEWS HIGHER: Along with its last report, Western Digital guided for Q3 adjusted earnings per share in the range of $2.00-$2.10 on revenue of roughly $4.55B. At the time, analysts expected the company to report Q3 EPS of $1.57 on revenue of $4.37B, but those figures have since risen to $2.14 and $4.57B, respectively. In addition, Seagate said along with its last report that it expects Q3 revenue of roughly $2.7B, compared to analysts' consensus at the time of $2.62B. The current Q3 consensus view for revenue is $2.71B. 2. BARCLAYS UPS PRICE TARGETS: Following the companies' earnings announcements, Barclays analyst Mark Moskowitz increased his price target for Overweight-rated Western Digital to $100 from $93 and for Equal Weight-rated Seagate to $49 from $46. Moskowitz said that cloud build-outs are currently the most important factor and have diminished the PC market impact on hard-disk-drive fundamentals. The analyst said at the time that he believes headlines around any PC market weakness later in spring could create buying opportunities. 3. MICRON EARNINGS: Shares of Western Digital and Seagate were trading higher in after-hours on March 23 after semiconductor company Micron (MU) reported better-than-expected quarterly results. Micron noted in presentation slides accompanying its quarterly report that revenue in its Storage Business unit were up 21% quarter-over-quarter and that revenue in the unit was driven by client and cloud SSD shipments. 4. LONGBOW, JP MORGAN BULLISH OVER NAND SHORTAGE: Earlier this month, analysts from two firms noted that companies in the data storage space could benefit from NAND shortage. On April 11, JPMorgan analyst Rod Hall upgraded Western Digital to Overweight from Neutral and raised his price target for the shares to $116 from $80, noting that NAND shortage should boost selling prices while the PC market is stabilizing. The analyst also said he believes that Western Digital has "significant potential" for cost reductions as it realizes synergies from its HGST and Sandisk acquisitions. The same day, Longbow analyst Joe Wittine upgraded Seagate to Buy from Neutral, saying that NAND shortages are causing demand for hard disk drives to rise, resulting in HDD price increases. The analyst added that, as a result, he expects EPS estimates for Seagate to rise.