Seagate (STX) Acquisition of Xyratex (XRTX) Closes

NEW YORK (TheStreet) -- Seagate's (STX) $294 million purchase of Xyratex (XRTX) officially closed Monday.

Shares of Seagate gained 2.3% to $56.16.

Seagate expects Xyratex to produce between $500 million and $600 million in revenue for the company's fiscal 2015, which ends July 3, 2015. The company also expects the acquisition to be neutral to earnings during the year.

Analysts have argued that Xyratex rival Teradyne (TER) will benefit most from the acquisition as its customers start to look for alternatives.

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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, good cash flow from operations 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 49.42%, 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.
  • Net operating cash flow has slightly increased to $856.00 million or 1.42% when compared to the same quarter last year. In addition, SEAGATE TECHNOLOGY PLC has also modestly surpassed the industry average cash flow growth rate of -4.16%.
  • SEAGATE TECHNOLOGY PLC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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 ($5.11 versus $4.79).
  • STX, with its decline in revenue, slightly underperformed the industry average of 4.7%. Since the same quarter one year prior, revenues slightly dropped by 3.8%. The declining revenue appears to have seeped down to the company's 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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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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