Following 35% Drop, Brean Admits It Was Wrong On Seagate's Stock

Seagate Technology PLC STX reported its March quarter results, with the overall revenue in line with the pre-announcement.

Brean Capital’s Ananda Baruah maintains a Buy rating on the company, while lowering the price target from $50 to $30.

Upside Potential

Baruah believes Seagate Technology can generate CY17 EPS significantly above the guidance of $2.50, which could lead to 40 percent upside potential to the stock from its current levels.

Related Link: Seagate Is The Lower Cost Way To Play The Cloud Trend, BTIG Says

“We believe at this point the biggest risk to the stock is in the valuation multiple that investors are willing to pay given the softer fundamental backdrop as well as SSD adoption dynamics,” the analyst mentioned.

On the other hand, Baruah expects the company to reduce its $750 million annual dividend by 50–66 percent, while repurchasing stock worth $375–$500 million annually.

March Quarter Results

The company reported its revenue for the quarter in-line with the consensus and pre-announcement, although the EPS missed expectations. The revenue of $2.6 billion represented a 22 percent year-on-year decline and 13 percent quarter-on-quarter decline.

Gross margins came in below the levels reported for the March and December 2015 quarters. Operating expense, on the other hand, was below the March and December 2015 quarter levels and in line with the pre-announcement.

“STX faced soft Mar Q demand due to Macro, PC weakness, and Performance Enterprise,” Baruah explained, while adding, “STX expects further declines in Jun Q overall Enterprise shipment while Nearline volume momentum is expected to accelerate from the Mar Q level.”