Cowen Lifts PT on Seagate (STX) to $36; Sees Current Dividend Levels as 'Much More Sustainable'

Cowen & Company lifts its price target on Market Perform-rated Seagate Technology (Nasdaq: STX) from $32 to $36 following strong preliminary Q1 results issued early Tuesday.

Analyst Karl Ackerman commented today, The company continues to execute well on its cost savings initiatives that it laid out only a few short months ago. With a more streamlined cost structure the company is generating higher cash flow, higher EBITDA and higher earnings that all suggest the company’s dividend payments (7% yield) are much more sustainable near term. The stock has underperformed the market today, in our view, from a misperception of what OPEX should be going forward. For SeptQ, OPEX is ~$30MM higher than expected due to bonus accruals and likely development expense from refreshing its product portfolio (likely aiding ASPs and COGS for the next few quarters). We think the higher Q/Q expenses are temporary, and we see STX able to achieve a ~$410MM OPEX runrate by the end of CY17 (a ~$60MM/Q improvement from SeptQ) as it streamlines its cost base. We are no less concerned about the company’s lack of meaningful exposure toward NAND flash that continues to displace HDDs in notebook PC and enterprise mission critical markets. With a more streamlined fixed cost base, however, we are raising our estimates as STX should be able to better weather a secularly challenged HDD TAM.

For an analyst ratings summary and ratings history on Seagate Technology click here. For more ratings news on Seagate Technology click here.

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