Seagate: An Overreaction?

05/03/2017 2:50 am EST


Chris Quigley

Contributing Editor, The Prudent Speculator

Shares of hard disk drive maker Seagate Technology (STX) shockingly plunged more than 15% after the company reported earnings per share of $1.10, versus the $1.08 estimate in fiscal Q3 2017, notes Chris Quigley, value investor and contributing editor to The Prudent Speculator

STX had sales of $2.7 billion, matching the analyst consensus estimate. While the top- and bottom-lines from fiscal Q3 were fine, next quarter’s revenue guidance was substantially short of expectations. 

STX expects revenue in the $2.5 billion to $2.6 billion range, while analysts were looking for on average $2.68 billion.

While the stock was punished, unfairly in our view, for its Q4 guidance, shares are still up more than 11% this year. 

We think the company is making meaningful progress on cloud-based and enterprise storage products (both in solid state and conventional hard disk offerings), and the corresponding drive demand will remain robust over the longer term. 

For investors that can see past the short-term disappointment, we believe that STX’s solid dividend yield of 6.0% and attractive valuation, including a price-to-forward earnings ratio of 9.1, are very good reasons to remain patient.

Those without a position in the stock should be considering a new investment, especially as we saw fit to boost our Target Price to $56 per share.

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