IT Hardware Stocks

Seagate Technology PLC Valuation – March 2018 $STX

Company Profile (obtained from Marketwatch): Seagate Technology Plc engages in the development, production, and distribution of data storage products and electronic data storage solutions. The company’s products include hard disk drives, solid state hybrid drives, solid state drives, peripheral component interconnect express cards, serial advanced technology attachment controllers, storage subsystems and computing solutions. It offers its products under the Backup Plus and Expansion product lines, and Maxtor and LaCie brands. The company was founded by Finis Conner, Syed Iftikar, Doug Mahon, David Thomas Mitchell, and Alan F. Shugart in 1978 and is headquartered in Dublin, Ireland.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of STX – March 2018

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 $15,705,383,820 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 Fail
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 -405.53% Fail
6. Moderate PEmg Ratio PEmg < 20 18.81 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 15.12 Fail
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 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.40 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.93
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $42.50
MG Value based on 0% Growth $24.92
Market Implied Growth Rate 5.16%
Current Price $55.14
% of Intrinsic Value N/A

Seagate Technology PLC does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.44 in 2014 to an estimated $2.93 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Seagate Technology PLC revealed the company was trading above its Graham Number of $18.43. The company pays a dividend of $2.52 per share, for a yield of 4.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.81, which was below the industry average of 41.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.55.

Seagate Technology PLC scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.55
Graham Number $18.43
PEmg 18.81
Current Ratio 1.58
PB Ratio 15.12
Current Dividend $2.52
Dividend Yield 4.57%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $4,910,000,000
Total Current Liabilities $3,113,000,000
Long-Term Debt $4,316,000,000
Total Assets $8,750,000,000
Intangible Assets $1,460,000,000
Total Liabilities $7,689,000,000
Shares Outstanding (Diluted Average) 291,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.23
Jun2017 $2.58
Jun2016 $0.82
Jun2015 $5.26
Jun2014 $4.52
Jun2013 $4.81
Jun2012 $6.49
Jun2011 $1.09
Jun2010 $3.14
Jun2009 -$6.40
Jun2008 $2.36
Jun2007 $1.56
Jun2006 $1.60
Jun2005 $1.41
Jun2004 $1.06
Jun2003 $1.36
Jun2002 $0.36

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.93
Jun2017 $3.05
Jun2016 $3.65
Jun2015 $4.86
Jun2014 $4.44
Jun2013 $3.54
Jun2012 $2.39
Jun2011 $0.34
Jun2010 $0.13
Jun2009 -$0.88
Jun2008 $1.78
Jun2007 $1.46
Jun2006 $1.33
Jun2005 $1.07
Jun2004 $0.79
Jun2003 $0.55
Jun2002 $0.12

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – July 2016
Dividend Investors Should Research These 10 Stocks – July 2016
Benjamin Graham Would Love These 10 Companies Today
10 Low PE Stocks for the Enterprising Investor – July 2016
5 Companies for Value Investors with a High Beta – July 2016

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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.

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