Brean Capital Recaps Seagate Technology's Earnings

Seagate Technology PLC STX reported in-line earnings for the fourth quarter on Monday before market open. Brean Capital analysts Ananda Baruah and David Ryzhik looked into the results.

The firm maintained a Buy rating and an $83 price target on the stock. Shares traded recenlty at $58.14, down 9.1 percent.

Key Takeaways

The company delivered revenue of $3.7 billion and EPS of $1.35, a few pennies lighter than Brean’s anticipated $0.02-$0.04 upside. According to the report, the firm’s long-term “thesis of secular GM expansion (ex-integration costs) and ongoing multiple expansion continues to play out,” and they use target EV/FCF multiples of 14x.

The analysts ultimately believe that the stock could trade around $100, reflecting a ~14x EV/FCF (15x normalized EPS of $6.50). Moreover, if Seagate Technology “were to execute on its Enterprise strategy and new business model (revenue growth 5%+ and OM of 15%+), then normalized EPS could be $7.00 - $8.00 and the stock could be >$110.”

Some Other Key Points

“TAM was as expected at 144M – 145M units.

ASPs were in line with our expectations of $61, up 1.7% Q/Q.

GM of 28.2% was 30bps softer than we’d anticipated, potentially the result of acquisition integration costs acting as a headwind.

Opex $ were $546M, lower than our modeled $556 and Street of $558. We view this as a potentially quite positive sign, as STX has had elevated Opex $’s for a while, and we’ve been looking for a break from trend and some additional leverage.

FCF was $1.23B, including the $763M award from WDC (WDC $106.10, Buy). Ex-the award, FCF was $465M, a tad softer than Street at $511M.”