Jefferies Reiterates Buy on Seagate Technology (STX) Despite Negative 3Q Pre-Announcement
Jefferies maintained a Buy rating and $40.00 price target on Seagate Technology (NASDAQ: STX) following the company's negative 3Q pre-announcement. Seagate pre-announced revenue of $2.6B, below its prior guidance and the Street's estimate of $2.7B. The expected gross margin of 23% is also lower than guidance (25.6%, Street = 25.7%). The revenue and gross margin weakness was due to lower demand for mission critical drives, desktop client drives in China, and company's "decision to not aggressively participate in the low capacity notebook market."
Analyst James Kisner commented, "Seagate negatively announced FQ3 results; the most surprising aspect of the pre-announcement was gross margin. The CQ1 guidance implies EPS of ~$0.40 (Street = $0.63). STX blamed lower demand for its mission critical drives, desktop drives in China, and STX ceding share in the low-end notebook market. While disappointing, we still see both a rebound for STX's business critical segment and a moderation of PCs unit declines later this year as positive catalysts."
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Shares of Seagate Technology closed at $33.93 yesterday.