IT Hardware Stocks

Seagate Technology PLC Analysis – September 2015 Update $STX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Seagate Technology PLC (STX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Seagate Technology plc (Seagate) is the provider of electronic data storage products. The Company’s principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. The Company produces a range of disk drive products addressing enterprise applications, where its products are designed for enterprise servers, mainframes and workstations; client compute applications, where its products are designed for desktop and notebook computers, and client non-compute applications, where its products are designed for a range of end user devices, such as digital video recorders (DVRs), personal data backup systems, portable external storage systems and digital media systems. In April 2014, Seagate completed the acquisition of Xyratex Ltd. In September 2014, Seagate Technology PLC completes acquisition of the assets of LSI’s Accelerated Solutions Division (ASD) and Flash Components Division (FCD) from Avago Technologies Limited.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of STX – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.63
MG Growth Estimate 14.13%
MG Value $170.37
Opinion Undervalued
MG Value based on 3% Growth $67.19
MG Value based on 0% Growth $39.39
Market Implied Growth Rate 1.11%
Current Price $49.72
% of Intrinsic Value 29.18%

Seagate Technology PLC qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the short dividend history, and the high PB ratio.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.39 in 2012 to an estimated $4.63 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.11% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Seagate Technology PLC (STX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

STX Charts September 2015

Net Current Asset Value (NCAV) -$3.91
Graham Number $28.16
PEmg 10.73
Current Ratio 2.38
PB Ratio 5.30
Dividend Yield 4.12%
Number of Consecutive Years of Dividend Growth 6

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $5,568,000,000
Total Current Liabilities $2,343,000,000
Long-Term Debt $4,155,000,000
Total Assets $9,845,000,000
Intangible Assets $1,244,000,000
Total Liabilities $6,827,000,000
Shares Outstanding (Diluted Average) 322,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.76
Jun15 $5.26
Jun14 $4.52
Jun13 $4.81
Jun12 $6.49
Jun11 $1.09
Jun10 $3.14
Jun09 -$6.40
Jun08 $2.36
Jun07 $1.56
Jun06 $1.60
Jun05 $1.41
Jun04 $1.06
Jun03 $1.36
Jun02 $0.36

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.63
Jun15 $4.86
Jun14 $4.44
Jun13 $3.54
Jun12 $2.39
Jun11 $0.34
Jun10 $0.13
Jun09 -$0.88
Jun08 $1.78
Jun07 $1.46
Jun06 $1.33
Jun05 $1.07
Jun04 $0.79
Jun03 $0.55
Jun02 $0.12

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – August 2015
10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015
10 Most Undervalued Companies for the Enterprising Investor – August 2015
10 Companies Benjamin Graham Would Invest In Today – August 2015
5 Undervalued Companies for Value Investors with a High Beta – August 2015

Other ModernGraham posts about related companies

KLA-Tencor Corporation Analysis – September 2015 Update $KLAC
Avago Technologies Ltd Analysis – Initial Coverage $AVGO
Arrow Electronics Inc. Analysis – Initial Coverage $ARW
TE Connectivity Limited Analysis – August 2015 Update $TEL
Broadcom Corporation Analysis – August 2015 Update $BRCM
SanDisk Corporation Analysis – August 2015 Update $SNDK
Corning Inc. Analysis – August 2015 Update $GLW
Intel Corporation Analysis – August 2015 Update $INTC
Advanced Micro Devices Inc. Analysis – Initial Coverage $AMD
Nvidia Corporation Analysis – August 2015 Update $NVDA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top