Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Seagate Shares Crashed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Seagate (NASDAQ: STX  ) have plunged 10% today following earnings that, while surpassing analyst expectations on the top and bottom lines, contained unwelcome downbeat guidance and executive comments that indicated that the current quarter would be more difficult.

So what: Seagate's fiscal second quarter saw revenue of $3.7 billion and adjusted earnings per share of $1.38, beating the consensus by $120 million and $0.10 per share, respectively. However, investors have focused on guidance for the in-progress third quarter, which forecasts revenues in the range of $3.25 billion to $3.45 billion, below analyst expectations even on the high end and well below the year-ago third quarter's result of $4.45 billion. Margins are also expected to weaken, with the expectation now that Seagate will hit the low end of its 27% to 32% margin range. CEO Stephen Luczo also admitted that it might be difficult to forecast demand, and CFO Pat O'Malley told TheStreet this morning that the PC slowdown and Windows 8 were putting additional pressure on the hard drive market.

Now what: This news prompted a downgrade from FBN Securities from buy to hold, although analyst Shebly Seyrafi increased his target price to $40 a share regardless. Reduced margins may be bad news in the near term, but Seyrafi pointed out that this indicates a willingness to battle chief competitor Western Digital on prices. A successful outcome would gain Seagate more market share, which would be worth the short-term weakness. Seagate also announced a small $40 million investment into flash memory maker Virident, which helps expand its product lineup. Additionally, its dividend remains strong, although it won't be paid out for a while, as the company accelerated payment into year-end 2012 to avoid the fiscal cliff.

While Seagate Technology pays a significant and growing dividend and seems able to generate the cash flow to support it, a global slowdown in demand for digital memory storage has begun to put pressure on margins. Is Seagate worthy of your investment consideration (and dollars)? The Motley Fool answers this question and more in our most in-depth Seagate research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2222508, ~/Articles/ArticleHandler.aspx, 9/27/2016 8:18:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,094.83 -166.62 -0.91%
S&P 500 2,146.10 -18.59 -0.86%
NASD 5,257.49 -48.26 -0.91%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 4:00 PM
STX $37.20 Up +0.74 +2.03%
Seagate Technology CAPS Rating: ****
WDC $57.01 Up +1.08 +1.93%
Western Digital CAPS Rating: ***