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Seagate Technology (NASDAQ: STX) is set to release its financial results for the first quarter of the fiscal 2013. The stock has gone berserk over the past 12 months, gaining nearly 200% in value. When you compare that to the 14.40% gain of the S&P 500, it seems quite impressive. Unlike companies such as Facebook and Netflix, which gain value in triple digit multiples in a year mainly thanks to hype, Seagate’s growth has been a lot more measured.
Seagate is also in the middle of a massive share repurchase program. The firm plans to reduce the number of outstanding shares by 250 million by 2014, not to mention the 100 million shares that the company has bought back in prior years. This stock repurchase is also accompanied with a higher than average dividend.
The large repurchases have helped push the overall EPS up and the P/E ratio down, currently to 4.3. The fundamentals of the company also look good, with it sitting on around $2 billion in cash reserves. The net profit margin of the company is about 22% and the free cash flow is at $2.62 billion. In the US, Seagate is the sixth largest provider of Computer Hardware, on a list that includes companies like Dell and Intel.
Indeed, the problem that the company is facing is very similar to those faced by other computer hardware manufacturers. Slowdown in growth reported by Dell, Intel, and the like all seem to affect the stock as well. Last month the stock was downgraded four times by analysts thanks to weakened demand for personal computers and the poor growth from the world economy as a whole. There are other uncertainties that the company will face, including the Presidential election and the uncertainties brought about by it regarding regulation and tax control.
When you look at competitors for the hardware manufacturer, Seagate seems to be doing okay. Western Digital (NASDAQ: WDC) is looking bearish in the eyes of analysts. The consensus estimate has moved from $2.38 a share to the current prediction of earnings of $2.33 a share.
Another thing that investors may want to keep an eye on is revenue every quarter. Revenue is projected to be $3.98 billion for the quarter, approximately 47% above the $2.69 billion the company made a year earlier. For the year, revenue is expected to come in at $15.74 billion. Revenue has increased for the company over the past two quarters, and in the most recent quarter it rose 97.8% year over year to $4.75 billion. The quarter before that it rose by 34%. Analysts generally think investors should stand pat on Western Digital, with 10 of 19 analysts rating it hold. Analyst sentiment has improved recently, as the number of buy ratings has risen slightly over the past three months.
Another company in the same space, Sandisk (NASDAQ: SNDK), recently posted a stronger than expected Q3 performance. The company earned $76.5 million, or $0.31 a share, for the quarter ended September. That's down 67% from $233.3 million, or $0.96 per share, in the same period a year earlier. Adjusted earnings were $117.8 million, or $0.48 per share, in the latest quarter.
An interesting thing to note with the company is the fact that it has increased exposure to Apple products, and this (mobile embedded systems) is an area that President and CEO Sanjay Mehrotra said the company showed “solid recovery” in. Another factor that keeps it interesting is the NAND flash, a type of memory that showed good sales during this quarter, thanks to improved pricing.
However, when we are looking at these three companies as a whole, the underlying risk factor is that they are computer hardware manufacturers. Add to this the fact that in the last three months, Seagate Technology insiders have sold a total of $78.19 million in shares, and you wonder what it is that these insiders know. Even Seagate might be a little undervalued at the moment, might tempt investors to take a chance with the stock, I’d suggest you to stay away.
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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.