What is Seagate’s Fundamental Value Based on Expected 2018 Results?

Seagate (NASDAQ:STX) has reported mixed results in the current fiscal year thus far, with slight revenue declines across hard drive segments. Similarly, company-wide gross margin has been slightly lower relative to the comparable prior year period. To offset the negative impact of lower revenues and gross profit margins, Seagate has successfully restricted increases in operating expenses due to which the company reported an increase in net income and EPS figures. We expect this trend to continue through the end of the current fiscal year. We have summarized our forecasts in an interactive model. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying Seagate’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts enterprise value (assuming a constant EBITDA multiple).

Seagate’s stock price has fluctuated between $31 and $55 since the beginning of last year. We have revised our long-term price estimate for Seagate to $44 from just under $40 previously. Our new price estimate is still around 15% below the current market price. The upward revision was driven by better-than-anticipated expense management by Seagate in recent quarters, as well as a slight improvement in gross margins relative to our prior expectations. All our forecasts for the year are summarized our dashboards for Seagate. If you have a different view, you can modify various inputs to see how updated inputs impact the company’s valuation. You can share the links to scenarios created on our platform.

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