Earnings Preview: Will Seagate Crush Earnings Targets?

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A lot happened in the storage industry since the last earnings report from Seagate Technologies (NAS: STX) : Mega-mergers have closed, sector-shocking disasters in Thailand struck disk makers unevenly, and Wall Street started to believe in this industry again.

The stage is set for an extremely interesting second-quarter report Tuesday night. Can Seagate live up to heightened expectations?

Here's what analysts expect from the company at the moment:

MetricEstimated Q2 2012Guidance for Q2 2012Q2 2011
Unit VolumeN/A47 million48.9 million
Revenue$3.14 billion$3.15 billion$2.72 billion
Earnings per Share$1.07$1.43 (calculated)$0.33

Data taken from Seagate press releases, Yahoo! Finance analyst estimates, and S&P Capital IQ historical data.

You know the Thai floods that hamstrung Western Digital's (NYS: WDC) manufacturing volume this quarter? As you can see, Seagate hardly felt it. According to the company's own preliminary report, unit volumes fell only very slightly from last year, or from the 51 million drives sold in the first quarter.

So the more enterprise-focused of the big drive makers pushed out units at nearly full speed while taking advantage of higher prices thanks to an industry-wide imbalance between supply and demand. Not too shabby.

On the bottom line, analysts seem to aim a lot lower than the updated guidance would suggest. Mind you, every single one of the 21 analysts offering earnings estimates for Seagate has boosted its numbers in the last 30 days, and projections for the quarter have more than tripled in three months. Even if Seagate merely meets what looks like a lowball estimate, we're talking about a major boost to bottom-line profits.

Inspired by its own blossoming financial health, Seagate recently boosted its dividend payouts by 39% and added $1 billion to the share-buyback program. Share prices jumped about 3.5% when these shareholder-friendly tidbits were announced. All told, Seagate share have more than doubled in value from the darkest days of fears regarding the Thai floods and gained 49% over the last year.

Mind you, Seagate wasn't entirely untouched by that disaster. Otherwise, there wouldn't be an industry-wide shortage at all, as Seagate would be able to simply steal all the sales that Western Digital or Toshiba lost. That didn't happen.

Recent reports from computing industry bellwethers show that tablets and smartphone end-user demand for traditional computer systems. Intel (NAS: INTC) crushed analyst targets, then IBM (NYS: IBM) reported strong demand for its mid-range Unix servers. And if you assume that some customers -- both consumers and enterprises -- held back computer purchases because of a sudden 50% increase in hard drive prices, I think we can expect a strong rebound in system demand. That should show up in optimistic guidance from Seagate this time.

There's a lot to like about Seagate, even after a 26% run-up to start 2012. If you love Seagate for its meaty 4.8% dividend yield, you should also have a look at 11 rock-solid dividend stocks that can secure your retirement. This special report is free for a limited time, so get your copy right now.

At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Western Digital, IBM, and Intel. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+.Motley Fool newsletter serviceshave recommended buying shares of Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. We have adisclosure policy.

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