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David Einhorn on Seagate Technology

May 31, 2012 | About:
Holly LaFon

Holly LaFon

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From David Einhorn's first quarter 2012 letter:

Seagate Technology (STX) was the other significant winner during the quarter. It is STX's normal practice on earnings calls to provide financial commentary looking ahead only one quarter. However, in January, STX shared its financial outlook for all of calendar year 2012,forecasting revenues of $20 billion. The prior consensus was for less than $15 billion. A good chunk of the increased forecast comes from higher pricing enabled by the industry shortage following the floods in Thailand last year.

STX also announced that it would be using some of its excess cash to ramp up its stock repurchase program, with a target of decreasing outstanding shares by 25%. When business conditions eventually normalize, the lower share count will enable STX to generate higher earnings per share.

Though the shares advanced from $16.40 to $26.96 during the quarter, the share price remains at a very low multiple of both near-term and longer term earnings. Based on our somewhat more conservative revenue outlook in 2012, we expect earnings to reach $10-$15 per share this calendar year, before settling at an average of about $5 per share in future years when the industry shortage will have ended.


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