Brean Capital: Buy Seagate Technology At These Levels

• Seagate Technology PLC STX shares have been on a downtrend and have lost 26 percent year-to-date.
• Brean Capital’s Ananda Baruah maintained a Buy rating for the company, with a price target of $65.
• Seagate’s shares are worth buying at the current price, Baruah said, citing higher EPS upside in the near term than was previously anticipated.

Analyst Ananda Baruah believes that investors should invest in Seagate’s stock at the current levels. The reasons cited are:
Higher EPS upside in the September and December quarters than was previously estimated
The $65 thesis remaining “entirely intact”
Seagate’s strong conviction in a 2-5 percent revenue growth model and Brean Capital’s estimate of the company’s 2017 normalized EPS power of ~$7.00, versus the Street’s $5.

“Bottom line is that STX has issued a significant response to the softer PC environment by reducing its Opex $s 20% from the Mar ’15 Q and Mar Q ’16 (when we believe Opex $’s will be ~$450M per Q),” Baruah wrote.

In the report Brean Capital noted:
The September quarter sell-out TAM is tracking above the high-end of the unit guidance range of 110M-115M
Seagate could be building some inventory “in addition to that which this Q could actually help INCREASE GM given a drawdown in the Jun Q that led to under-absorption”
The company is expected to spend $1bn to repurchase shares in 2H15

The analyst believes that Seagate would appreciate to $60-$65 in the next 4-6 quarters. This would represent 20-30 percent appreciation and 4.3 percent dividend.