Seagate Technology Looks Upon a Sea of Disappointment (STX)

The two-day hiatus from trading did little to slow the streak of technology companies reporting financial results and giving future guidance that fell short of analyst expectations. Seagate Technology (NASDAQ: STX) became the latest contestant to disappoint Wall Street prognosticators when the company released first-quarter earnings for 2013.

On a year-over-year basis, Seagate saw revenues increase nearly 33% to $3.73 billion. Profits rose from $0.32 to an adjusted $1.45 per share, which translates into a gain of over 300%. The seemingly good news was tempered, however, by analysts’ expectations that called for a profit of $1.69 per share. This is the second quarter in a row where Seagate profits have fallen below analysts’ estimates.

The company did little to instill confidence when management talked about the next quarter. Seagate executives see continued weakness in demand from enterprise customers due to the company’s exposure in Europe and the fact that tablets likely lengthen the refresh cycle for notebook computers. They now forecast second-quarter revenues of $3.55 billion versus Wall Street estimates of $3.84 billion. In anticipation of a weak quarter, the consensus view of analysts has lowered profit projections over the last two months from $2.07 to $1.79.

Unlike other tech companies that fell shy of estimates, shares of Seagate Technology faced only moderate selling pressure at the opening this morning. The stock opened down 42 cents to begin the session at $27.49. The small gap nearly filled in the first half-hour of trading when the stock traded at an intraday high of $27.82. As traders prepared for lunch on the east coast, sellers hit the stock down to a daily low of $26.77. Shares prices rebounded a bit in the afternoon. On the closing bell, the stock finished with a loss of 2% to end the trading day down $0.58 at $27.33. The pace of shares exchanging hands during the session was slightly faster than the number traded on an average day. Volume for the day was a tad over 11 million shares compared to a daily average of 8.69 million shares.

Over the last 12 months, Seagate shares have climbed higher in a staircase fashion from an annual low of $15.00 established at the beginning of the year to a 52-week high in August when traders exchanged shares for $35.71. Even at current prices, the stock has gained 80% since January.

Seagate presently pays a dividend of $1.28 per year on its stock, which equates to a yield of about 4.7% based on the price today. The dividend might buffer share prices from any excessive selling pressure. With profits weakening, the question for investors and traders might focus on the security of future dividend payouts. JP Morgan analyst Mark Moskowitz raised the possible dividend issue in a research call where he also reiterated his “neutral” stance on the stock. Analysts at Robert W Baird also reissued a “neutral” rating on the Seagate shares with a price target of $34.00.

Twenty-three analysts cover the stock with an average rating of “hold”. Currently, the consensus view has a price target of $30.95 on Seagate shares.

Seagate Technology manufactures and sells hard drives. The Cupertino, California, company was founded in 1979.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).