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NEW YORK (TheStreet) -- Xyratex (XRTX) shares soared 26.8% to $13.26 on Monday after news that Seagate (STX) - Get Seagate Technology Holdings PLC Report will acquire the company.

Seagate will acquire Xyratex for $13.25 per share, a total of about $374 million. The deal is expected to close by sometime in the middle of 2014.

Xyratex's hard disk drive capital test equipment should help Seagate strengthen its HDD supply and manufacturing chain, according to a press release. The acquisition will also expand Seagate's storage systems offerings.

Seagate expects a positive cash flow after the acquisition, saying that Xyratex will contribute between $500 million and $600 million in fiscal 2015.

TheStreet Recommends

TheStreet Ratings team rates XYRATEX LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate XYRATEX LTD (XRTX) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • XRTX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, XRTX has a quick ratio of 1.51, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has significantly increased by 110.67% to $1.28 million when compared to the same quarter last year. In addition, XYRATEX LTD has also vastly surpassed the industry average cash flow growth rate of 6.87%.
  • XRTX, with its decline in revenue, underperformed when compared the industry average of 2.9%. Since the same quarter one year prior, revenues fell by 21.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Computers & Peripherals industry. The net income has significantly decreased by 69.7% when compared to the same quarter one year ago, falling from $7.75 million to $2.35 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market, XYRATEX LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: XRTX Ratings Report