Why Seagate Is a Buy

Seagate Technology (STX) announced fourth quarter ended July 01, 2016 total revenue of $2.65 billion, down 2 percent sequentially from $2.59 billion in third quarter of 2016 and a decline of 10 percent year-over-year from $2.93 billion in fourth quarter of 2015.

Seagate declared fourth quarter of 2016 non-GAAP net income of $207 million or $0.69 per diluted share, up 214 percent sequentially from $66 million or $0.22 per diluted share in third quarter of 2016 but, declined 17 percent year-over-year from $250 million or $0.77 per diluted share in fourth quarter of 2015.

The global hard-drive manufacturing company reported continued year-over-year decline in both its top and bottom lines primarily driven by the continuing cost-optimization related expenditures that are impacting the company’s overall profitability.

Seagate has consistently grown the total amount of Exabyte shipped along with the average capacity per drive both sequentially and year-over-year which is in line with its continued commitment to deliver sustainable long-term growth while offering attractive shareholder returns.

The hard-drive maker has illustrated 11% and 19% sequential and year-over-year respective growths in Exabyte shipped to 61.7 Exabyte in fourth quarter of 2016 coupled with 18% and 46% sequential and year-over-year respective expansions in average capacity per drive (in GB) to 1,674 GB during the fourth quarter of 2016.

The worldwide hard disk drive manufacturing company seems significantly confident on its sustainable long-term growth mainly due to the expanding demand for large size and faster storage solutions that are based on the latest cloud depended technologies.

Innovation will drive growth

Seagate has uniquely introduced an innovative collection of 10TB high volume drives referred to as the Guardian Series that are purposefully developed to enable customers impressively handle and shift significant quantity of digital data that they create and consume.
Why Seagate Is a Buy
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This attractive portfolio of hard drives include, the Seagate SkyHawk used for strategic surveillance, Seagate IronWolf used for advanced NAS applications and 10TB Seagate BarraCuda Pro desktop drive all together representing the most technologically-superior 10TB hard drive offerings across the industry.

The superior guardian series of hard drive offerings comprises of industry-leading technological advancement that enhances the product features, expands the capacity and speed to be used all through a wide variety of markets that include surveillance systems implemented on large-scale, small and mid-size businesses, online gaming, design, creative and personal computing.

Growth drivers

Seagate attractively launched the Nytro XM1440 M.2 which is a non-volatile memory express (NVMe) Solid State Drive ("SSD") with two terabyte (TB) storage capacity. This drive is believed to be the greatest capacity, made for the enterprises M.2 NVMe SSD that is available currently and making it best suited for resource intense enterprise applications requiring instant processing, significant storage capacity and quick data access.

The continued slowing down demand of the global household consumer PC market has encouraged Seagate to increasingly focus on developing advanced storage solutions for the enterprise customers while steadily capturing the strategic enterprise consumer market. Going forward, the technologically-superior and competitively priced storage solutions offering of Seagate is believed to increasingly attract new enterprise customers towards the company while allowing it to deliver sustainable long-term shareholder returns.

Seagate recently declared that ValueAct Capital would grow its planned stake in the hard drive manufacturer and thus, making it Seagate’s largest shareholder while allowing it to take part in its internal workings.

Further, the hard drive manufacturer has recently announced a key agreement with Sugon that is an advanced information system combined service provider in China, whereby the latter would integrate Seagate’s advanced 4TB Enterprise Performance 3.5 Hard Disk Drive into its innovative TC4600T collection of advanced server products.

The international hard drive manufacturing major seems keen on entering into strategic growth contracts that is believed to provide the company with attractive line of customers to which it can sell these advanced products and deliver sustainable long-term company growth.


Overall, the investors are advised to “Hold” their position in Seagate Technology plc considering the company’s significant long-term growth prospects being driven by notable growth efforts and strategic expansion partnerships but, currently weaker financial position with huge total debt of $4.13 billion against weaker total cash position of $1.13 billion only, restricting the company to continue with its daily operations profitably. The profit margin of 2.22% also appears satisfactory. The PEG ratio of 6.01 seems impressive and indicate healthy industry-leading company growth.
Published on Sep 22, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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