Seagate Technology (STX, Financial) looks solid in its goal of achieving long-term growth. It plans to invest strategically in its business that should generate greater revenue for the company over the years and create strategic advantage for Seagate Technology. Seagate Technology is seeing strong growth momentum going across its business segment such as PC, gaming and cloud storage. This strong trend should accelerate its top and bottom line performance this fiscal year.
Growth drivers
Seagate should benefit from the increased demand for drives in cloud computing. In fact, its cloud system and solutions business once again surpassed its internal revenue plan in the last reported quarter. Also, it has launched two new products such as The EVault Enterprise Backup and Recovery Appliance of late, which should contribute to its sales this quarter and into 2015. The EVault Enterprise Backup and Recovery Appliance provide accommodation up to 100 terabytes of usable capacity and the ClusterStor 9000 solution. Also, these products have 50% greater performance as compared to past ClusterStor platforms.
In addition, its strategic investment should result in greater profitability going forward. Seagate has recently acquired SSD controller and PCI assets from Avago Technologies (AVGO, Financial). This investment should increase the weight of its integrated flash technology platform going forward. Also, the company has slightly increased its gross margin rate that now ranges from 27 to 32 points despite this integration of Xyratex and Avago flash technology assets in the near-term.
Further, the company should benefit this fiscal year from strong adoption of its new products like Nitro PCIE product platform. This product platform is gaining a lot of traction in the market with new as well as existing customers. Also, strong demand in the high growth market should accelerate sales for its Nitro PCIE product family.
Hybrid drives are improving
Moreover, the company is experiencing higher sales trend for its client hybrid drives. Seagate looks pretty strong this quarter to generate sequential growth for its client hybrid drives. The company has so far sold approximately 12 million hybrids this quarter. This certainly highlights strong demand for the hybrid products in the markets. Seagate has been realizing strong momentum for its storage portfolio since the beginning of the year and expects this trend to continue to the end of this fiscal and into 2015. In fact, the industry has estimated total market demand of approximately 145 million units for the current quarter. Which is good-looking and Seagate would certainly want to take a larger piece of this great opportunity and maximize its return in the market with its new as well as existing products.
However, the strong and stiff competition in the industry will certainly make its going tough ahead. Its peers such as Western Digital (WDC, Financial) and EMC Corporation (EMC, Financial) are also seeing strong growth hard disk drives, solid state drives and flash platform solutions businesses. Nevertheless, Seagate should benefit from the market share decline in the total addressable market for Western Digital. Its share decreased from 45.7% in the previous quarter to 44%. Market share also contracted from 44.7% reported in the year-ago quarter. Also, the company has increased its annual dividend by 26% that should attract more investors who are looking for purchasing high paying dividend stock.
Apart from these trends, the company should benefit from the increased shipments. It shipped around 60 exabytes of storage in the last reported quarter, an increase of almost 22% sequentially as well as yearly. Also, for the first time, it was pleased to see its average gigabytes for the drives exceeding 1 terabytes. Additionally, the company is investing heavily in the architecture and cloud storage. It has strong road map for both in terms of aerial density and flash integration for its technologies that should enhance its growth in the long-run
Conclusion
Seagate provides great investment opportunity. The ongoing trend in the market looks strong and should drive its short as well as long-term growth going forward. The analyst expects its earnings to grow at CAGR of 12.5% for the next five years that indicate healthy growth prospects for the company in the future. The stock is currently trading at the trailing P/E of 14.68 and forward P/E of 11.39 that shares cheap valuation for the stock that has healthy returns in the future. Moreover, its PEG ratio of 1.05 continues to support its growth over the five years. It has profit and operating profit margins of 10.87% and 12.79% respectively for the trailing 12 months. Its balance sheet carries total cash of $2.20 billion and has total debt of $3.81 billion. It has operating cash flow of $2.40 billion and leverage free cash flow of $1.34 billion.
