3SOF

Hi Melf Elf,

TA and FA is all about predicting the future price of a stock.

STX has become the test between the prediction power of TA and FA (at least between the two of us )so let me challenge you:

From a fundamental point of view the perfect time to buy this stock is in the start or middle December (and this has nothing to do with earnings as Seagate has already proven their earnings power!) I will bet that the chart will show a break out by end of December start of January and those people who bought before that will do better than those who reacts on the TA signal. (that includes those who are in the stock today)

Are you game?

I am sorry if I am a bit cocky but until now this earning season has been excellent for the FA's on this board!

Mike

Seagate is up over 25% over the last month despite several downgrades from major analysts.

As said before in this thread these downgrades have (IMHO) nothing to do with the fundamentals of the company but everything to do with New SAC's distribution of Seagate shares. (You see these shares can't be sold in the open market for 12-month)

Try to have a look on Bear Sterns recent downgrade:

QuoteThe company operates in a highly competitive industry fueled by price aggression, oversupply, and excess capacity, and its operating results depend on strong execution to maintain overall quality, competitive cost structure, adequate supply, product qualifications with customers, and technological parity with its competitors.

Seagate could lose market share rapidly if any of its competitors can outperform the company in any of the above metrics. If the company is not able to align its cost structure to ASP declines in the industry, then its results could suffer.

Unexpected volatility in PC, server, and storage demand could hurt the company's pricing and margin structure.

Unexpected technology advances by its competitors could also hurt the operating results of the company.

Yeah:

• the company could loss marketshare
• the result will suffer if it can't adjust its cost structure
• unexpected volatlity could hurt the result
• unexpected technology advances by it competitors could hurt the result

I almost feel sorry for BS. They are really struggling to justify this downgrade. There must be a lot of money in it for them! It becomes almost hilarious when it comes to the price target:

QuoteValuation: Fair Value of $10-$13.

As for valuation, while the stock is currently trading at P/S multiple of 0.9x on our CY06 estimate, it could trade down to historical median multiple of 0.6x-0.8x (or fair value of $10-$13, lowered from $22-$24 based on a P/E multiple of 11x-12x).

Given the highly cyclical nature of the drive industry and potential for significant earnings contraction, we have switched our valuation methodology from P/E basis to P/S basis and view 0.6x-0.8x P/S appropriate given the weakening industry dynamics since it is the historical median for the stock

To justify the new valuation they had to change the criteria from P/E based to P/S. I guess that nobody would take them serious if they wrote that they based their valuation of a P/E around 5 on their own earning forecast!

The chart below shows the P/E ratio for this year:



As can be seen STX traded with a P/E between 25 to 30 until the downgrades started.

The valuation now is ridiculous. Seagate trades with a 100% to 200% discount to each peers:



You would expect that this kind of discounts would be because they are not performing or because the industry is facing difficulties in the future but nothing could be further from the truth.

Seagate is a clear leader in their industry. They have been profitable every year since 2002 and the revenue is growing fast:



As to the industry it is struggling to meet demand. (See the Komag thread). A recent survey among HDD distributors indicates that demand will increase in Q1 2006 (this is against a normal slowdown in q1): http://www.infostor.com/Articles/Article_Display.cfm?Section=ARTCL&SubSection=Display&PUBLICATION_ID=23&ARTICLE_ID=242149

Let me quote:

QuoteIn responding to a question regarding the Q4 2005/Q1 20006 outlook, 62% of the survey participants said they were "on plan" in terms of revenues, 38% were "above plan," and none of the survey participants were "below plan" in Q4. And 38% anticipated 5%+ sequential growth in Q1, while 62% anticipate flat revenues. This is in contrast to the more-typical pattern of revenue declines in the first quarter.

and it continues:

QuoteOverall, HDD pricing is relatively stable, according to 88% of the Baird survey respondents, despite some aggressive price-cutting on enterprise-level SCSI drives over the last few weeks. But most distributors expect pricing to be stable in 2006, in part due to constrained supply, and 67% of the distributors say that HDD pricing is "more rational" now than it was a year ago.

Well it doesn't seem to me like an industry that are facing a slow down in demand. This is hardly surprising with the explosion in the need for HDD due to music and video downloads and new consumer devices. In fact exactly the same analysts that are downgrading STX expect earnings to increase next year.

But enough about the fundamentals. As said a couple of days ago STX's stock price has nothing to do with the fundamentals.

The real question is when the Bear Sterns, JP Morgan, Goldman Sachs and Morgan Stanley are finished buying the restricted shares and decides to take the stock up again.

Well the last shares are being distributed in January. (25 million) and the banks can start selling the shares in May 2006.

My feeling is that we will see the stock price taking off in December (as more and more private investors are becoming aware of this scam) and the upgrades from the analysts will come after the release of Q4. 2006 should be a fantastic year for Seagate investors.

So I am going to buy more STX at any weakness in the coming month.

Mike

Good pick Michael i'll be looking into this...(APP..)

Hi Terlisa

Not sure what APP means but I am looking forward to the result of your DD 

It is interesting to see that Institutions and Mutual Funds own 105% of the float of STX. One of the investors that recently has increased his holdings is David E. Shaw, known as the Bill Gates of computer finance. He increased his position with 280% according to the latest reporting.

Another interesting development which has not received much coverage is the continuation of the stock repurchase program to the tune of $400 million (hidden in an 8K on Wednesday)

Writing this post I looked through the thread and found this post which formed part of the TA/FA discussion.

Quote from: Michael on September 22, 2005, 04:26:41 PM
Situations like this offers some excellent opportunities to buy value stocks like AOB, KOMG, CKCM, VPHM, STX etc. etc. etc. at a nice discount.

All these stock are up today with an average of 19%. Not a bad return over 2 month. I am still holding every single one and still believe they have a long way to go before they are fairly valuated!

Mike

fyi:
STX: Susquehanna Starts @ Positive; Analyst Notes
Friday , November 18, 2005 09:23 ET
Issuer: Seagate Technology (NYSE: STX)
Analyst Firm:  Susquehanna
Ratings Action: INITIATE
Current Rating: Positive
Analyst Comments: The firm believes expectations are achievable and valuation is attractive especially in the 2H06 timeframe as products incorporating perpendicular recording technology ramp.

&
STX: Short Interest UP 11.0% to 7.7M in Nov 2005
Monday , November 21, 2005 16:24 ET

According to new short interest data from NYSE, short interest for Seagate Technology (NYSE: STX) INCREASED 11.0% to 7,655,624 shares for the month ended mid-November, 2005.

SYMBOL     OCTOBER        NOVEMBER          CHANGE    %CHANGE     DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
STX            6,893,997       7,655,624        +761,627       +11.05%           2

Based on STX's 20-day average daily share volume of 3,863,510, it would require approximately 2 day(s) of buying to cover this short interest.

Quote from: Michael on November 27, 2005, 07:49:59 AM

Not sure what APP means but I am looking forward to the result of your DD  !

Mike

Michael, "APP" means APPLAUD (I just made it short)
Applauded you for the STX posts you've made...  goodluck my friend

Terlisa

I was wondering why my Applaud rating went up 

Thanks a lot and good luck with your investment as well. I am following your posts and I am sure we will find a stock we both like one day!

Mike

Applause Mike and thank you for these great picks.  I bought KoMG today and will probalby establish a position in STX soon.

It seems like the upgrades are coming in from left right and center now 

This is a bit earlier than I had expected but I guess that the positive earnings outlook released Thursday made the artificial downgrades look even more ridiculous than when they were issued (if possible).

Here is what Bear Sterns now have to say about Seagate and the HDD market:

QuoteIn a research report, Bear Stearns long-time computer hardware analyst Andrew Neff said he raised his investment rating on shares of Maxtor Corp. (MXO), Western Digital Corp. (WDC), Seagate Technology (STX) and Komag Inc. (KMG) to peer perform from underperform because of strong demand for desktop and notebook computers, low inventory for hard disk drives and a improved pricing environment.

"HDD industry conditions are clearly strengthening," wrote Neff in a research report. "While we note that the sector is highly volatile, the last 2-3 data points have been positive." Neff was referring to Western Digital and Seagate, both of which raised their financial targets for the December quarter.

Here is the problem. The HDD market never weakened. This whole story about weakening demand was created by Bear Sterns, J P Morgan, Goldman Sacks and Morgan Stanley to support their own agenda as discussed previously in this thread.

All these firms seem to have agreed to upgrade the stock to neutral. So there are still room for upgrades after the release of the December earnings.

By the way this whole issue is now so obvious that even Cramer has realized it:

QuoteSeagate Technology raised guidance Thursday by about 10% for the quarter, Cramer said, and the stock was up only about $1. Today it was down 46 cents. "That's not right," said Cramer.

I couldn't have said it better. That is not right and as usual when the market is wrong there are money to be made!

Let me finished with the chart. I hope I am not the only one who have bought a ticket for this journey to the north

fyi 

STX: Deutsche Bank Ups to Buy from Hold; Sets Tgt @ $24; Analyst Notes
Thursday , December 01, 2005 09:52 ET
Issuer: Seagate Technology (NYSE: STX)
Analyst Firm:  Deutsche Bank
Ratings Action: UPGRADE
Current Rating: Buy (from Hold)
Target Price: $24.00
Analyst Comments: The firm notes multiple should expand, as the company's new product lines should be met with strong demand.
&
STX: Bear Stearns Ups to Peer Perform from Underperform; Analyst Notes
Friday , December 02, 2005 07:42 ET
Issuer: Seagate Technology (NYSE: STX)
Analyst Firm:  Bear Stearns Cos.
Ratings Action: UPGRADE
Current Rating: Peer Perform (from Underperform)
Analyst Comments: The firm upgraded the stock based on stronger PC demand, low channel inventories, benign pricing, and tight supply.

When I get older loosing my hair many years from now......

Well maybe not so many years from now but I will always remember when KCScott said that Seagate's needed TA. Hell No it just needed some common sense.

You have a clear industry leader in an industry that is growing very fast who generates a lot of cash and is trading at a PE around 11. (TTM - forward PE is even more interesting)

Seagate has just announced that it will buy Maxtor at a premium of 60% and guess what the stock is up. This deal obviously makes a lot of sense but it also demonstrates how undervalued all the HDD shares are.

The analysts have notoriously been embarrassing wrong on HDD stocks. Yesterday we had one of the experts trying to talk down KOMG. Really a bit silly to be honest but I am sure he had his reasons.

Just hours after the take over of Maxtor Seagate confirmed their commitment to KOMG. It might be surprising that they in the middle of a take over have time to talk about one of their suppliers but for us who have taken the time to understand this industry this shouldn't come as a surprise. After all KOMG is key to the success of Seagate and this just confirms how strong a market position KOMG has.

Let me finish this with a quote from William Watkins, the chief executive of Seagate Technology from Forbes today:

QuoteEverything is being disruptive and disrupted," he says. "Disk drives have been a $20 billion market for five years. All of a sudden you're going to see phenomenal growth--an extra $10 billion to $15 billion.

No wonder you have a chart like this:

Logocovet asked in the KOMG thread whether it was too late to join the Seagate party.

Well it has been a hell of a run since November but this should be seen in perspective. In November the whole world thought that the Hard Disk industry was taking it last breath. Three month later it seems like this is the hottest industry to be in! I am still trying to figure out what has changed



In November Seagate really was a no-brainer. The picture is more complex now. Seagate has offered to buy Maxtor. As mentioned earlier I believe that the take over makes a lot of sense:

• They now becomes a clear number one in the HDD space
• They can squeeze a lot of synergies out of the merger
• Their cost base has the potential to be the lowest in the industry
• The market becomes less competitive with the consolidation and capacity adjustments are easier with fewer players.

On the downside you might see some customers who previously was buying from both Maxtor and Seagate diversify to another supllier.

All in all STX expects the merger to add 10 to 20% to their earnings – a figure that some analysts say is conservative.

Number two HDD producer Western Digital is trading at a PE of 20 whereas STX is trading at 13. That doesn't make a lot of sense to me. Seagate is market leader, technology leader and they are growing revenue faster than Western Digital.  I really can't find any reason for the discount so a conservative target would be $36 or 50% higher than the Friday close.

Timing is not my strongest discipline (even though I got it pretty right with Seagate!)  but when I see this kind of valuation I simply buy the stock. When that is said it seems like the stock is a bit overbought right now so you might prefer to wait. Any analyst downgrade or other silly comments should be an excellent entry point!

Mike

analyst coments:

STX: US Bancorp Cuts to Mkt Perform from Outperform; Analyst Notes
Wednesday, January 11, 2006 08:10 ET
Issuer: Seagate Technology (NYSE: STX)
Analyst Firm:  U.S. Bancorp Piper Jaffray
Ratings Action: DOWNGRADE
Current Rating: Mkt Perform (from Outperform)
Analyst Comments: The firm believes STX's valuation reflects the demand outlook for PCs and consumer devices.

&

STX: Kaufman Bro Starts @ Buy; Sets Tgt @ $25; Analyst Notes
Thursday , January 12, 2006 09:17 ET
Issuer: Seagate Technology (NYSE: STX)
Analyst Firm:  Kaufman Brothers L.P.
Ratings Action: INITIATE
Current Rating: Buy
Target Price Action: INITIATE
Target Price: $25.00
Analyst Comments: The firm's channel checks support better HDD pricing and lower levels of channel inventory.

&

STX: Goldman Sachs Ups to Outperform from In-Line; Sets Tgt @ $30; Analyst Notes
Friday , January 13, 2006 08:28 ET
Issuer: Seagate Technology (NYSE: STX)
Analyst Firm:  Goldman Sachs & Co.
Ratings Action: UPGRADE
Current Rating: Outperform (from In-Line)
Target Price: $30.00
Analyst Comments: The firm has raised estimates substantially above consensus and sees further upside.

CC:
Seagate to Report Fiscal Second Quarter 2006 Financial Results on January 18, 2006
Monday , January 09, 2006 19:17 ET
SCOTTS VALLEY, Calif., Jan 09, 2006 /PRNewswire-FirstCall via COMTEX/ -- Seagate Technology (NYSE: STX) will report fiscal second quarter 2006 financial results on Wednesday, January 18, 2006, after the close of the NYSE market. A subsequent conference call for the investment community will take place that day at 2:00 p.m. Pacific Time.

The conference call can be accessed online at www.seagate.com or by telephone as follows:

USA: (877) 223-6202
International: (706) 679-3742

Replay
A replay will be available beginning January 18 at 5 p.m. Pacific Time through January 25 at 8:59 p.m. Pacific Time. The replay can be accessed from www.seagate.com/newsinfo/invest or by telephone as follows:
USA: (800) 642-1687
International: (706) 645-9291
Conference ID: 4075738

insider trading:
http://www.secform4.com/insider/showhistory.php?cik=stx

Hi Oliver,

Thanks for the info on the Analyst ratings. As they have got their ratings totally wrong for some time I don't pay too much attention to them.

An exception might be Goldman Sachs. They are one of the main shareholders of New SAC and also a big shareholder of STX directly (They increase their holding with 116% in Q3 - can't wait to see the Q4 13F!!!).

I do think Goldman Sachs have their own agenda but at least they should have the inside track being part of the shareholder agreement between New SAC and STX. Here are some additional information on their upgrade:

QuoteShares of Seagate Technologies (STX), a leading maker of hard-disk drives for PCs as well as consumer electronics, surged 5% on Friday following a bullish outlook from Goldman Sachs analyst Laura Conigliaro. She says the company's profits will likely be much stronger this year than the Street is expecting.

Conigliaro upgraded the stock to "outperform" and now lists it as one of her top picks for the year (along with EMC Corp., Hewlett-Packard and IBM). What makes the stock appealing, she says in a research note, is that analysts are underestimating the company's potential, and the shares are trading at a compelling price. "We see the prospect of substantially rising earnings estimates as a powerful driver for Seagate's shares," she says.

Conigliaro thinks Seagate will be able to earn $2.05 per share in calendar 2006, compared with the consensus estimate of $1.80, according to Thomson First Call. And she says that even her estimate may be too low.

Conigliaro expects tech spending by both consumers and businesses to pick up a bit this year, which would benefit technology-hardware companies as a group. She expects Seagate will enjoy strong sales volumes, as well as stable pricing for its products. That's notable because tough competition continually puts pressure on disk-drive makers to sell their products cheap. Better pricing should lead to better margins, she says.

Conigliaro notes that the company is broadening its offerings of disk drives for consumer electronics -- generally viewed as a promising area for growth. The firm's drives are included in everything from digital music players to video game consoles. She says notebooks and consumer electronics both "offer major share-gaining possibilities" for Seagate. And she says its desktop business should enjoy share gains or improved profitability as well.

Seagate announced in December that it plans to acquire disk-drive maker Maxtor Corp. Conigliaro says the company's post-merger forecast doesn't appear positive enough. She says that although combined company will likely lose some of its market share once the deal is completed, losses will be limited, considering Seagate's technology advantages and the fact that there aren't that many other companies to which customers can turn.

At $24, the stock trades at 13 times the consensus calendar 2006 earnings estimate. Conigliaro thinks the shares are worth $30.

Let me just be honest. I tend to like analysts more when they support my opinion