Brean Capital Reiterates On Seagate Technology

Brean Capital on Tuesday reiterated Seagate Technology PLC STX as a Buy and maintained their $83 price target due to an attractive valuation, dividend yield and cash holdings.

Analysts Ananda Baruah and David Ryzhik wrote, “Our bullish L-T view on STX remains entirely intact following yesterday's Dec Q conference call – if not even strengthened. We highlight that the most important takes are incrementally structural positives: 1) TAM growth for '15 vs. Street view of decline and 2) Cloud drive constraints that necessitate industry GM moving to 32% - 35% vs. 28% - 29% currently. We believe this dovetails very nicely with our L-T industry framework of Industry Gross Margin expansion of 100-200 bps over the next few years (and perhaps 400-500 bps next 5-7 years), vs. a consensus view of secularly declining margins.”

Seagate reported fourth quarter sales of $3.70 billion and EPS of $1.35, which matched Wall Street's expectations. Gross margins of 28.2 percent were lower than analyst estimates of 28.5 percent. “On the call, management stated that they anticipate “growing into” the Gross Margin and eventually generated a higher-than-corporate margin profile from the Cloud systems business.

Seagate Technology closed Monday at $59.06.