Do Seagate Technology's (
STX
) minuscule
PE ratio
and gigantic
dividend yield
mean the company's is screwed?
Not everybody thinks so. Hedge Fund manager David Einhorn, for
instance, owns more than 23 million shares, nearly 10 percent of
the outstanding. And Greenlight Capital, Einhorn's fund, recently
added significantly to his holdings.
But, overall, the market seems to be unimpressed by Seagate,
even when the company reported sharply higher earnings for its
fiscal first quarter compared to the same period ending in
October 2011.
STX
data by
YCharts
Investors have lavished love on the technology sector in
general lately, of course. But disk drive makers' fortunes are
seen as closely tied to the ailing PC industry. And part of the
reason for Seagate's profit improvement is that it has had more
product to sell than most rivals, as its Thailand-based drive
suppliers were less impacted than others in 2011 flooding there.
The effects of that flooding have been largely remedied now,
theoretically erasing Seagate's temporary advantage.
Seagate's most recent quarterly results also committed the
serious infraction of missing estimates, as its EPS of $1.40 fell
well below the consensus $1.67 analysts expected. That misstep is
likely behind the shares' lackluster performance of late.
But there is more to Einhorn's infatuation than contrarianism.
One clue is Seagate's seductive 4.73 % dividend yield. Compared
to other tech stocks -- Microsoft (
MSFT
), Intel (
INTC
), International Business Machines (
IBM
) and Hewlett-Packard (
HPQ
) -- the yield is impressive.
STX Dividend Yield
data by
YCharts
Seagate can also be seen as a something of a consolidation
play in the disk-drive sector. The company has conducted some
noteworthy acquisitions in the last year, including a
$1.4-billion deal for Samsung's hard drive business and a smaller
deal for hardware manufacturer LaCie. Rival Western Digital (
WDC
) has also been an active acquirer, but assuming disk drives
aren't going to go away, there is likely room for at least a
handful of top players.
And disk storage isn't likely to disappear soon. In addition
to filling bays on consumer and business PCs and laptops, Seagate
also supplies storage devices for servers. That ties their
fortunes to the fast-growing data farm business, and the
cloud.
Seagate has managed to stay among the leaders in the
fast-spinning world of data storage since its founding in the
days of the Apple II, before the IBM PC and before Compaq. With a
rich dividend payout, a modest PE and a strong position in a key
technology sector, this venerable drive maker may not be ready to
crash just yet.
Mark Henricks is a contributing editor at YCharts, which
includes the just-released
YCharts Pro Platinum
for professional investors.