Here’s Why We Revised Seagate’s Price Estimate To $29

May 20th, 2016 by Trefis Team
+16.09%
Upside
85.81
Market
99.62
Trefis
STX: Seagate Technology logo
STX
Seagate Technology

We recently revised our price estimate for Seagate (NASDAQ:STX) from $39 to $29. The primary reasons for the price estimate revision were lower revenue expectations due to subdued demand for most product streams over the last few quarters for Seagate, which will negatively impact the company’s margins and earnings going forward.

stxrev4In its fiscal second quarter earnings call in January, Seagate’s management provided weak FY’16 guidance for revenues as well as margins.  [1] Subsequently, the company announced preliminary Q3 FY 2016 results recently, revising its expected revenue and margin figures downward for the quarter. [2] As a result, the company’s stock tanked by over 20% in April. Correspondingly, we have incorporated the changes to our model to better reflect future revenues, margins and unit shipments.

stxrev2

Relevant Articles
  1. Down 11% This Year, Will Expedia Stock Recover Following Q1 Results?
  2. Is 3M Stock Appropriately Priced Around $95?
  3. How Is AMD’s Fledgling AI Business Doing?
  4. Li Auto Is Down 30% This Year, What’s Happening With The Stock?
  5. What’s Happening With T-Mobile Stock?
  6. With The Stock Flat This Year, Will Q1 Results Drive Booking Holdings’ Stock Higher?

Moreover, Seagate’s March quarter results painted an even more disappointing picture than the preliminary results. Seagate’s stock price fell by 19% immediately after the quarterly results were announced as the company provided soft guidance for future quarters. As a result we have revised our full year forecasts for the company. As you can see in the table below, full year shipments are expected to be lower than our previous estimates across all divisions but most significantly for the PC division. Seagate’s PC and laptop HDD unit sales are correlated to global desktop and laptop sales, which are both expected to steadily fall over the next few years (see How Will HP’s Laptop Business Fare Through 2020? and How Will HP’s Desktop Business Fare Through 2020?).

stxrev3Seagate’s management believes that some of the downward trends in the storage industry indicate “short-term dynamics” rather than long-term trends. [3] Over the long run, CEO Steve Luczo expects large-scale investments and data centers to continue to source high-performance hard drives instead of switching over to flash storage completely. We currently forecast Seagate’s enterprise storage segment to drive future growth; according to our estimates, enterprise storage makes up just under 50% of Seagate’s $8.7 billion valuation.

Have more questions about Seagate? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  Our Full Analysis For Seagate.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Seagate Q2 FY 2016 Earnings Call Transcript, Seeking Alpha, January 2016 [↩]
  2. Seagate Technology Announces Preliminary Financial Information For Fiscal Third Quarter 2016, Seagate Press Release, April 2016 [↩]
  3. Why Seagate Technology PLC Plunged 36.8% in April, Motley Fool, May 2016 [↩]