Seagate Technology: Improving Outlook

Seagate technology (STX) operates in the growing data storage industry, although despite an established brand and quality products, growth has stagnated over the past decade. As growth prospects improve and third quarter results have just been released, this analysis explores the company’s financial performance, shareholder value strategy and valuation.


Dublin-based Seagate Technology offers hardware and software solutions for storage and data transfer. The Company’s main products include hard disk drives (HDDs, SSHDs and SSDs), a system portfolio that includes enterprise storage subsystems, cloud service providers, scalable storage servers, and others. Seagate’s solutions address both businesses and individuals.

The global data storage industry offers attractive growth prospects. According to Seagate’s 2021 update to its “Worldwide Global DataSphere Forecast, 2021-2025,” the global “datasphere” is expected to grow from 64 zettabytes in 2020 to 180 zettabytes by 2025, implying strong demand for solutions. company storage.

Financial performance review and outlook

Seagate’s revenues have shown no significant growth over the past decade. A 10-year and 5-year CAGR of -1.00% and 1.80% looks daunting, especially considering the euphoric macro environment that has led to record business growth over the same period.

Net income, on the other hand, is more promising, growing at a CAGR of 20.57% over the past 5 years. Operating profit also displayed some growth attributes, registering an 11% increase in CAGR since 2017.

After a significant decline in 2020, profitability is recovering, with gross margins hitting the 30% mark, despite rising inflationary pressures and global supply chain constraints. Despite greater fluctuations over the past 5 years, net profit margins are currently around the 15% level.

On the balance sheet side, Seagate maintains a decent cash and cash equivalents balance of $1.13 billion, while a current ratio of 1.5 should alleviate any near-term liquidity issues. A possible area of ​​concern could be a growing long-term debt balance that is not associated with a commensurate expansion in sales. Long-term debt/total equity is 0.92 (or 92%), indicating that leverage is, in fact, somewhat high. Seagate’s long-term debt balance fell from $4.2 billion in 2019 to $5.6 billion at last report.

Over the next few years, analysts maintain heightened optimism in terms of both revenue and net profit growth. A 50% rise in profits is expected for fiscal 2022, while revenue is expected to rise 11% year-over-year. For the next two years, growth should moderate, around 10% for net income and 4% for turnover.

Now: Q3 2022 results

On April 27, Seagate released its financial results for the third quarter of 2022, which ended April 1, 2022. Quarterly revenue of $2.8 billion marked a 2.6% increase from year on year, while meeting analysts’ expectations. Non-GAAP EPS of $1.81 missed by $0.07. Cash from operations and free cash flow were $460 million and $363 million. In terms of profitability, gross margin increased to 28.8% from 27.1% a year ago (Non-GAAP).

For the next quarter (Q4 2022), management expects revenue between $2.65 billion and $2.95 billion and non-GAAP EPS between $1.70 and $2.10. This is in the low range of the previously expected forecast of $2.92.

In line with its shareholder value appreciation strategy, the company returned $571 million to investors through dividend payments and stock buybacks of 4.1 million shares.

Share price performance

Seagate’s stock price has seen many swings in volatility over the past 6 months or so. After a strong rally at the end of 2021, taking the stock to all-time highs of $117.67, STX marked a major decline in early 2022, falling more than 30% to its current price of 82.17. $. Seagate trades at a market cap of $17.35 billion, while paying a dividend of 3.41%.

With shareholder value in mind

In the current market environment, Seagate offers an attractive dividend yield of 3.41%, more than double the average yield of the S&P 500. However, dividend growth in recent years has stalled. While Seagate’s 10-year CAGR growth of 17.5% is more than enough, a slowdown has recently been observed. The 5- and 3-year CAGRs of 1.7% and 2.8% look disappointing compared to industry medians of between 7 and 10% and given worrying increases in inflationary pressures.

On a more positive note, Seagate has a solid and proven record of share buybacks aimed at increasing shareholder value over time. Common shares outstanding have fallen from 292 million in 2017 to 220 million today. Especially considering that the company traded at relatively inexpensive valuations, share buybacks have proven to be an effective way to generate stock market returns while increasing existing shareholders’ stake in the company.


By most accounts, Seagate’s current valuation looks attractive. The company trades at a FWD P/E ratio of 9.5x and a FWD P/S ratio of 1.5x. Both are below historical averages and industry medians, indicating possible mispricing by the market. Especially considering the expectations of increased growth and profitability for the company, the value proposition looks attractive. A P/FCF of 8.7x and an EV/EBITDA of 8.6x also point to similar conclusions.

The Taking of Wall Street

When it comes to Wall Street, Seagate has a Moderate Buy Consensus
rating, based on eight purchases, seven reservations and one sale awarded over the past three months. STX’s average price target is $96.93, which is 18.15% upside from current price levels, with a forecast high of $125.00 and a forecast low of 67.00 $.


After all, despite an unimpressive past growth performance, high expectations and attractive valuation multiples argue in favor of an investment in Seagate. A sizable dividend yield also adds to the stock’s appeal, despite rather slow increases over time.

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