Foolish Forecast: Seagate Opening the Floodgates

"Well, we're doin' mighty fine, I do suppose,
In our streak of lightnin' cars and fancy clothes,
But just so we're reminded of the ones who are held back,
Up front there oughta be a man in black."

-- Johnny Cash, "Man in Black"

Hard-drive maker Seagate (NYSE: STX) reports third-quarter earnings on Tuesday night, so this Fool thought it a mighty fine idea to check up on the company's past, present, and near future. Read through it, won't ya, and see if Seagate is being held back.

I'm the Fool in black.

What Fools say:
Here's how Seagate's CAPS rating stacks up against some of its peers and competitors:

	Market Cap (Billions)	Trailing P/E Ratio	CAPS Rating (Out of 5)
Seagate Technology	$10.6	7.5	****
Western Digital (NYSE: WDC)	$6.0	8.6	****
SanDisk (Nasdaq: SNDK)	$5.7	27.3	****
STEC (Nasdaq: STEC)	$0.4	36.9	****
Iomega (NYSE: IOM)	$0.2	21.0	**

Data taken from Motley Fool CAPS on April 14.

That data storage is so hot right now, and big dog Seagate is leading the pack in more ways than one. I think CAPS player Andrevan sums it up best by saying that Seagate "is a big, safe, stock, the market leader in its industry with many expensive supplier deals and safe numbers. Gives a dividend of 1.85%. P/E is 8, and trading near 52wk lows."

On the flip side, a very industrious bear thinks that hard disks will be dead five or six years from now, judging by pricing trends on magnetic drives versus flash memory chips. It's the only substantive negative opinion any CAPS player has offered in the past eight months.

What management does:
Seagate closed its acquisition of Maxtor in May 2006 and then spent a few quarters working through the integration issues. Some of the slowing revenue growth is an artifact of that deal, as the first three-and-a-half columns below are comparing post-merger results to pre-merger figures while the last two are more organic in nature.

Growth (YOY)	9/06	12/06	3/07	6/07	9/07	12/07
Revenue	22.6%	24.3%	25.8%	23.4%	19.6%	15.8%
Earnings from continuing operations	(36.5%)	(58.8%)	(66.0%)	8.7%	112.8%	243.6%

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	20.6%	18.8%	18.5%	19.9%	22.2%	24.2%
Operating	6.2%	4.7%	5.2%	6.5%	9.5%	11.5%
Net	5.9%	4.1%	3.4%	8.0%	10.5%	12.3%
FCF/Revenue	0.0%	(1.2%)	(3.2%)	0.3%	8.9%	10.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With Maxtor fully under its belt, Seagate looks ready to take on the world. Flash drives may or may not be the future, but they are little more than a nuisance for hard drive makers today, as the technology is still learning to crawl. If you like to own underpriced stock in solid market leaders that have started to show us the money after a difficult year, then Seagate might be for you. If not, I don't rightly know how to make you happy, son.