Seagate Technology (NASDAQ:STX) Is A High-Yield Value You Need To Own

Seagate Shares Tank After Great Quarter, Positive Outlook

 Seagate Technologies (NASDAQ:STX) just reported its calendar 3rd quarter/fiscal 1st quarter results and shares are down 5.0% because of it. The report showed a double-digit decline in revenue, I know, but nonetheless, the fall in share prices is unexpected. The company was already a deep value trading at 11X this year’s earnings so with the outlook for 2021/2022 as good as it is, and the dividend as high as it is, this stock should be a screaming buy.

 Seagate Technologies Has Mixed Quarter But Reaffirms Guidance

Seagate Technologies reported $2.31 billion in 1st quarter revenue or down 10.5% from last year. The figure is $0.05 billion below the consensus market or roughly 220 basis points which is a surprise. Most tech companies are reporting much stronger than expected revenue driven by remote-work demand. On a segment basis, the company’s core HDD business brought in $2.14 billion or $0.04 less than expected while Enterprise Systems, Flash, and Other missed by $0.195 billion. Looking forward, the company expects the Enterprise, Flash, and another segment to show sequential improvement as the economy regains momentum.

"Seagate delivered solid September quarter results supported by strong recovery in the video and image applications market and healthy cloud data center demand, which drove double-digit year-over-year revenue growth for our mass capacity storage solutions. We see indications for Enterprise demand to improve and we expect this to continue as the broader markets gradually recover, supporting our positive December quarter outlook and reinforcing our revenue expectations for the fiscal year," said Dave Mosley, Seagate’s chief executive officer.

Moving down, the company was able to deliver wider margins than in the previous year and above consensus targets. The adjusted gross margin came in at 26.5%, beating consensus by a tenth while the operating margin came in at 12.7% to beat by a half percent. The bottom line results were also better than expected with Adjusted EPS of $0.93 beating by $0.03 and GAAP EPS beating by $0.15. As for guidance, the company reaffirmed its previous guidance for the 2nd quarter in the ranges of $2.35 billion to $2.75 billion in revenue and $0.95 to $1.25 in adjusted earnings. The mid-point of both ranges is well above the consensus targets.

Seagate Technology Is A High-Yield Dividend Growth Stock

Seagate Technologies is a solid dividend payer yielding more than 5.0% with shares trading near $52. The company has a long history of dividend increases as well, if not a consistent one, with the most recent announced with the Q1 2020 earnings report. The company upped the dividend by 3% to $268 putting the payout ratio at 57% of this year’s consensus. Regarding the payout ratio, the company has already beaten the Q1 consensus and is on track to beat the 2Q so I think the real ratio is closer to 50%. The stock goes ex-dividend on 12/22.

And the balance sheet is in good shape too. This company has a high level of debt, nearly 250% of equity and 70% of total capital, but that is offset by a substantial cash position, good coverage, ample FCF, and the decision to reinstate the buyback program. The board reinstated the buyback program and added $3 billion bringing the total available to $4.2 billion.

The Technical Outlook: Seagate Falls To Support, Wait For The Bounce To Buy

Seagate Technology shares fell more than 5.0% on the news but that is due more to short-selling than anything else. The short-interest on the stock was running near 9% before the release which is enough to push prices lower in the absence of a buying catalyst. While bad news for holders of the stock is it is good news for those that want to buy more or get in. The thing to do now is to wait for a bounce and it may come today. If the price action doesn’t move up from today’s open at the $49 level my next target for support is near $47.50. Regardless, the stock is a deep value and a safe high-yield.