|Shares Out. (in M):||461||P/E||0.0x||8.8x|
|Market Cap (in $M):||6,909||P/FCF||0.0x||10.0x|
|Net Debt (in $M):||153||EBIT||0||813|
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Seagate Technology (NYSE:STX) is a leading hard disk drive ("HDD") manufacturer, with approximately 30% of the global HDD market. HDDs are used by PCs, servers, mobile devices, and other electronic devices that use and store data. The Company manufactures and distributes HDDs to customers in the PC, enterprise, mobile and external drive end markets (STX' business is weighted the higher ASP / margin enterprise devices). STX is headquartered in California, although the holding company is domiciled in Ireland, and a large percentage of the manufacturing is done in Thailand, Singapore and Malaysia. The Company's business is relatively straightforward, and I'm happy to elaborate in the Q&A if needed.
The stock has come under pressure of late, due to three primary concerns:
While the stock has rebounded from recent lows, I see meaningful upside to the high teens throughout 2011. Near-term upside exists from improved pricing, a key investor concern which has plagued the industry throughout previous downturns (the WDC / HGST deal is a major positive for the industry). This is a key positive, which has not yet been adequately reflected in street models (or the stock). When coupled with the Company's share buyback program, I think we can see high teens relatively soon. Longer-term, I see (i) sustainable margins due to a shift in industry structure, and (ii) a longer "tail" to the STX' business than the street is pricing in. The HDD industry in aggregate may not be able to support double digit growth rates, but STX' business is unlikely to disappear, given (i) their strong presence in enterprise drives, (ii) potential upside from hybrid drives, and (iii) longer-term PC demand driven by growth in emerging markets. I see downside as relatively manageable, given (i) poor sector sentiment, (ii) share buybacks and financial flexibility and (iii) attractive valuation.
Valuation & Capital Structure
|Seagate Technology (NYSE:STX)|
|Options & Warrants||8.2|
|Plus Capital Leases||1||0.00%||Jan-00||NM||NM|
|Plus Senior Notes||600||6.38%||Oct-11||102.75%||0.8%|
|Plus Senior Notes||416||10.00%||May-14||117.47%||3.9%|
|Plus Senior Notes||600||6.80%||Oct-16||105.38%||5.6%|
|Plus Senior Notes||600||6.88%||May-20||98.25%||7.1%|
|Plus Senior Notes||750||7.75%||Dec-18||103.00%||7.2%|
|52 week high||$20.90|
|52 week low||$9.84|
|average daily volume||10.6|
|average daily $$ traded||158.8|
|short as % of float||2.3%|
|days to cover||0.8 days|
|Fiscal Year End||6/30/07A||6/30/08A||6/30/09A||6/30/10A||6/30/11E||6/30/12E||6/30/13E|
|HDD Industry Units||457,710||542,830||519,690||632,790||654,214||686,925||721,271|
|Cash Flow Build|
|less cash interest||(25)||(62)||(140)||(167)||(168)||(168)||(168)|
|less cash taxes||(19)||(67)||(40)||(30)||(46)||(52)||(62)|
|less change in NWC||(743)||132||(126)||95||(86)||(6)||1|
|Discretionary Free Cash Flow||55||1,490||(7)||1,940||341||692||813|
|Growth & Margins|
|TEV / Revenue||0.6x||0.7x|
|TEV / EBITDA||4.4x||4.1x|
|TEV / EBIT||8.7x||7.5x|
|Free Cash Flow to Equity||10%||12%|
|Memo - Consensus EBITDA||1,891||2,092|
|TEV / Consensus EBITDA||3.7x||3.4x|
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