Xyratex Ltd. - Aggressive Growth
January 26 2012 - 7:00PM
Zacks
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.
Valuations
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.
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