RBC: Seagate Technology 'Oversold' In Light Of Dividend Yield

Seagate Technology PLC's STX third-quarter results may miss the Wall Street consensus but will prove better than many investors may fear, an analyst said Tuesday.

RBC's Amit Daryanani maintained an Outperform rating on the Ireland-based disk drive provider, but cut his price target more than 7 percent to $62.

Given the stock's 4 percent dividend yield, Daryanani said the shares are "oversold."

Seagate, down 19 percent year-to-date, changed hands recently at 53.67, off $1.17.

The company is facing weakness in markets related to personal computers while retail sales are getting hurt by a strong dollar.

But demand from business is holding up, and the segment offers comparatively wide profit margins, Daryanani said.

Pricing is stable across the board, "which should calm investor fears about price wars" over hard disk drives, according to Daryanani.

"The current correction more than adequately reflects those concerns," the analyst said.

Daryanani cut his earnings estimate for the third quarter by nearly 4 percent to $1 a share, versus the current Wall Street consensus of $1.08 a share.

On the plus side, the analyst expects Seagate's gross margin will widen to 28.7 percent for the third quarter, from 28.5 percent in the second quarter.