Seagate (STX): Video Surveillance Market is Bigger and Faster Growing than Originally Thought - Brean
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Brean Capital analyst Ananda Baruah reiterated a Buy rating and $42 price target on Seagate Technology (NASDAQ: STX), saying the video surveillance (VS) market is larger and growing faster than they thought.
Baruah commented, "We continue to believe that STX could ultimately have earnings power to generate $4.00 - $6.00 in normalized EPS, and what we learned on our Video Surveillance call yesterday would incrementally support that. We believe that over time STX could have the ability to reduce COGS by at least $400 - $500M annually, if not greater. Additionally, we believe that STX should have the ability to reduce Opex $s at least $200M. We note that each $100M in cost saves equals $0.33 in EPS. Our $42 TP is 12x our CY17 EPS of $3.50."
After hosting a call yesterday with STX's Steve Loh (Director of Global OEM) & Jason Bonoan (Manager of Product Marketing). STX characterized the VS market as currently 6% - 7% of its overall capacity shipper. It also believes that 1) the VS capacity (exabyte) opportunity will increase 3x - 4 over the next 4 - 5 years, 2) that VS GM is currently ~200bp stronger than corporate average, and that 3) VS GM has potential to expand further as the drives incorporate greater innovation and technology to meet required increasing application needs.
The above metrics would suggest that VS could potentially account for at least 15% - 20% of STX capacity shipped in 4 - 5 years, the analyst said.
Shares of Seagate Technology closed at $38.42 yesterday.
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