Why Seagate Technology (STX) Is Down Today

NEW YORK (TheStreet) -- Seagate Technology  (STX) was falling 9.75% to $52.39 on Tuesday after the disk-drive maker reported a 13% drop in profits and declining revenue in the second quarter.

Seagate reported a profit of $428 million, or $1.24 a share, down from $492 million, or $1.30 a share, in the same period one year earlier. Earnings per share, excluding items, came in at $1.32, compared to $1.38 a year earlier. Analysts polled by Thomson Reuters expected an EPS of $1.38. Revenue also dropped 3.8% to $3.53 billion. Seagate had estimated revenue in the range of $3.5 billion to $3.6 billion.

Read: Is Seagate Fall a Blip or a Trend?

"Seagate's results in the December quarter reflect discipline in managing the profitability of our business and strong operational execution. We continue to strategically invest in our product portfolio and enhance our vertically integrated manufacturing capabilities to effectively capitalize on the cloud, mobile and open source storage trends that are being fueled by data growth," said chairman and CEO Steve Luczo in the company's statement. "Our cash flow was very strong this quarter, and combined with the execution of our capital allocation strategy, we are on track to meet our goal of returning 70% of our operating cash flow to shareholders this fiscal year."

TheStreet Ratings team rates SEAGATE TECHNOLOGY PLC as a "buy" with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate SEAGATE TECHNOLOGY PLC (STX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • Compared to its closing price of one year ago, STX's share price has jumped by 65.86%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, STX should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • STX's debt-to-equity ratio of 0.75 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that STX's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.77 is high and demonstrates strong liquidity.
  • SEAGATE TECHNOLOGY PLC's earnings per share declined by 18.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, SEAGATE TECHNOLOGY PLC reported lower earnings of $4.79 versus $6.45 in the prior year. This year, the market expects an improvement in earnings ($5.37 versus $4.79).
  • STX, with its decline in revenue, slightly underperformed the industry average of 2.6%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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, SEAGATE TECHNOLOGY PLC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: STX Ratings Report

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