Seagate Technology for decent growth, a cheap valuation and a 6% yield


Seagate Technology (STX), one of the largest manufacturers of hard disk drives (HDD) which caters to the needs of individual and small businesses, saw its stock fall 16.5% after reporting Q3 earnings.  The company was able to reverse last year’s loss with net income of $194 million and EPS of $1.10 which beat expectations by almost 3%. However revenue growth of just 3% disappointed and Seagate said that sales could remain weak this quarter as component shortages are likely to restrain growth.

The disappointment is made greater as expectations for the company have improved recently as the company has successfully focused on the larger enterprise segment, where technology upgrades and cloud-related investments are on the rise. Moreover, Seagate’s cloud-based applications have generated ample customer interest.

The lack of growth is a disappointment but the results reflect a relatively stable demand environment and improved profitability year-over-year.  Trading on a multiple of less than 10 times forecast 2017 earnings with a dividend yield of 6.00% the stock looks cheap.


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Disclosure: The author holds no positions in any of the stocks mentioned nor has any intentions to initiate any in the next 72 hours.