Xyratex Earnings Preview: Can It Beat Low Expectations?

Tech company Xyratex XRTX 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. The Company 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. Performance 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 NTAP and Western Digital WDC over the past quarter. Action Items: Bullish: Investors interested in exchange traded funds invested in Xyratex might want to consider the following trades:

• iShares Russell 2000 Index IWM
• iShares Russell Microcap Index IWC
• PowerShares FTSE RAFI US 1500 Small-Mid PFRZ
• ProShares Ultra Russell2000 UWM

Bearish: Traders may want to consider these alternative positions:

• ProShares Short Russell2000 RWM
• ProShares UltraShort Russell2000 TWM
• ProShares UltraShort Russell2000 Value SJH
• Direxion Daily Mid Cap Bear 3X Shares MWN

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.