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Bull of the Day: Seagate Technology (STX)

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Tech’s recent volatility has some investors ditching the sector altogether, but with demand for many key products—including memory storage solutions—still on the rise, one needs to maintain some exposure to this growth. One great option is scooping up shares of the memory giants themselves, including the likes of Seagate Technology (STX - Free Report) .

Seagate manufactures a portfolio of hard disc drives, solid state drives, and solid state hybrid drives. The company develops solutions for both the enterprise and consumer markets.

Secular trends are driving growth in the memory market, and Seagate certainly stands to benefit. Meanwhile, an improving earnings outlook has earned the stock a Zacks Rank #1 (Strong Buy), while several key valuation metrics remains attractive.

Latest Earnings & Outlook

Seagate most recently reported financial results on Jan. 29. The company posted adjusted earnings of $1.48 per share, beating the Zacks Consensus Estimate by eight cents and improving about 7.2% from the year-ago period. Revenues were also up slightly year over year, with net sales of $2.91 billion surpassing our consensus estimate of $2.83 billion.

Seagate is expected to report its latest quarterly financial results in late April. Analysts are expecting the company to report adjusted profits of $1.30 per share, which would represent year-over-year growth of more than 18%. Revenues are projected to be up 2.4% to hit $2.74 billion.

But these estimates have been trending higher over the past few months, suggesting that analysts are warming on the company’s prospects for both the near and long term. Let’s take a closer look.

Estimate Revisions & Key Stats

 

As we can see, estimates have been moving higher on the back of universal agreement to the upside. Investors should certainly note this trend for the soon-to-be-reported quarter, but it is even more encouraging to see this extend into upcoming fiscal periods. This suggests that analysts are hopeful that growth catalysts like tax cuts and rising demand could have a real impact for the foreseeable future.

At the same time, STX is trading at an extremely attractive valuation. The stock currently has a Forward P/E of 12.0, which is a discount to the “Computer- Storage Devices” industry average of about 15.0. STX also has a P/S ratio of 1.6, which presents a significant discount to the broader tech market.

Seagate is generating about $6.78 in cash per share on the back of 32% cash flow growth, outpacing its own average historical cash flow growth. The company is also a great income option and currently offers a dividend yield of about 4.3%.

This type of strength helps STX stick out in a volatile market. While our “Computers and Technology” sector has slumped about 3.6% over the past month, STX has actually gained about 6.5%. Investors should feel comfortable with the firm’s unique position as one of the tech sector’s most appealing options right now.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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