Wednesday, January 20, 2010

Seagate Smokes earnings estimates, shares +10% in late trading (STX, WDC)

Storage company Seagate (STX) blew away Wall Street estimates for its second fiscal quarter ended December.  They reported non-GAAP earnings of 1.05 per share, versus the expected 65cents.  On the conference call they guided third quarter revenues and earnings above expectations.  Adding tonight's eps beat and the boosted third quarter guidance, that's an additional 80cents on top of the street consensus of 2.32 for the fiscal year ending June 2010.  

This is a BIG "beat and raise."  Of 23 Wall Street estimates for this year, the low is 2.15 and the high is 2.57.  The company will come in at 3.12 per share before ANY boost to the June quarter's numbers.  There could be upside there as well as the back half of 2010, as STX management said they have not seen ANY upside from a Windows 7 replacement cycle, something they'll expect to see later this year.

3.20 in EPS gets me to $1.8billion in basic free cash flow, for a Free Cash Flow Yield of 24% even as the stock is up 10% after hours.  If an IBM or Microsoft or Procter & Gamble had this yield, I'd be DROOLING.  But just like WDC, Seagate will NEVER get the respect it might deserve for it's prodigious cash flow, largely due to extreme volatility in earnings and the storage industry's trendency (I know I just misspelled that, but realized it might be a fantastic new word, yes?)   to harm itself with overcapacity.  That said, if the PC refresh cycle does give the industry a boost, these shares will head higher and yield a mid-teens  Free Cash Flow.  



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