Brean Capital Remains Positive on Seagate (STX) Following Move to Acquire Dot Hill (HILL)

Brean Capital affirms Seagate Technology (Nasdaq: STX) with a Buy rating and $65 price target following news that the company will acquire Dot Hill (Nasdaq: HILL) for $9.75 per share.

Analyst Ananda Baruah noted the following key points:

1. This does not in ANY WAY impact STX’s current buyback – in fact, we believe STX has remained very active in the market and that it continues driving to its Sep Q / Dec Q targets of reaching 310M shares (average diluted) / 305M shares (average diluted), vs 323M shares (average diluted) in the Jun Q.
2. HILL deal is expected to be slightly accretive to FY16 EPS (Jun ’16), for which STX had previously guided to ~$5.00 in implied FY16 EPS on flat revenue vs FY15 EPS of $4.55.

Baruah also said, The STX ODM strategy is to cultivate a niche, yet attractive ($1B - $2B revenue) storage business in big data / cloud areas without competing with their OEM customers. We believe that with HILL / Xyratex combined this business could be tracking to ~$700M - $800M currently. As they are buying ODM’s of these customers, they believe this positions them as such. Additionally, this provides STX an unusual opportunity to get under the skin of the design of Big Data / Cloud systems in a unique manner, and add value by designing systems and assisting other cloud ODM’s (to whom they sell the drives to today) by increasing performance and driving down cost. STX believes there is a very attractive opportunity L-T to assist in optimizing the supply chain, as well as disaggregating systems software from hardware.

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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