Xyratex Earnings Preview: Can It Beat Low Expectations?

Tech company Xyratex

is scheduled to report its fiscal third-quarter 2011 results later today, September 29. The British data storage company posted an unexpected loss in the second quarter due to shrinking revenues as companies put off capital investments due to uncertainty in the industry. Short interest is currently about 6% of the float. Analysts on average predict that Xyratex will report earnings of $0.18 per share, a significant drop from $1.20 in the same period of last year. That EPS estimate is unchanged from 60 days ago. And note that per-share earnings have fallen short of consensus estimates in two of the past six quarters. The forecast also calls for the company to post revenues of $351.2 million, which would be 18.4% lower than a year ago. Looking ahead to the current quarter, analysts so far are looking for a narrower 2.8% year-over-year decline in revenues. And the forecast for the full year so far calls for revenues down 10.1% year over year and per-share earnings nearly 80% lower.

Havant, UK-based Xyratex provides modular enterprise-class data storage solutions and storage process technology, and it designs and manufactures enabling technology that supports storage and data communication networks. It operates in two segments: Networked Storage Solutions and Storage Infrastructure. The company sells its products to original equipment manufacturers, disk drive manufacturers, and other companies primarily in Asia, Europe and North America. The company was founded in 1966 and it has a market cap of $269.8 million. During the three months that ended in August, the company declared a nickel per share quarterly dividend, offered EPS and revenue guidance in-line with expectations, and announced the coming launch of its ClusterStor 3000, a high-performance computer platform.

The company has a long-term earnings per share growth forecast of only 5.0% but a return on equity of 21.2%. The forward earnings multiple is 7.9 and the PEG ratio is 0.8, which is below the industry average. Four of seven analysts following the stock rate it a Buy or Strong Buy, and they have a mean price target of $11.33 per share. At $8.91, the share price is down more than 21% in the past six months. Shares have traded mostly between $8 and $9 since early August; the 52-week low is $7.58. But the share price has climbed more than 8% in the past week, leading to the earnings report, and is now above the 50-day moving average. The stock has outperformed competitors such as NetApp

and Western Digital

over the past quarter.

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