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Bull of the Day: Seagate Technology (STX)

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Headquartered in Dublin, Ireland,Seagate Technology (STX - Free Report) is a global leader in data storage solution. They are the second-largest manufacturer of hard disk drives in the US and offer other electronic data storage products.

Impressive Results

The company reported results for the second quarter of fiscal year 2017 ended December 30, 2016, on January 24. Their diluted earnings per share up surged 82% year-over-year, while gross margin expanded 600 basis points.

Non-GAAP earnings of $1.38 per share beat the Zacks Consensus Estimate by $0.31 and were up 68% year-over-year. This was their third consecutive beat.

"The company’s product execution, operational performance, and financial results improved every quarter throughout 2016. In the December quarter, we achieved near record results in gross margin, cash flow, and profitability," said the CEO.

The stock surged about 14% after the report.

Returning Capital to Shareholders

Seagate continues to boost shareholders’ value through dividends and share repurchases. They paid dividends worth $0.7 billion and repurchased $1.1 billion shares in fiscal 2016. The stock has a dividend yield of 5.23% currently.

Rising Estimates

The Zacks Consensus Estimate for FY 2017 and FY 2018 have surged to $4.48 per share and $4.74 per share respectively, up from $3.78 and $3.77, before the results.

The Bottom Line

Computer Storage is a hot industry currently with the Zacks Industry Rank of 33 out of 265 (top 12%). While the company had suffered earlier last year from weaker demand for personal computers that use their hard disks, they took a number of actions including cost and job cuts to improve probability.

Of late, demand for their products from cloud service providers has seen strong growth. They have also been very active on the acquisition front, which has improved their competitive edge. Trading at 10.8 times forward earnings, the stock quite attractive in terms of valuation.

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Disclosure: I own STX in the Income Investor portfolio.


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