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David Einhorn Ups Seagate Technologies Stake Almost 60%

June 12, 2012 | About:
Holly LaFon

Holly LaFon

248 followers
David Einhorn, founder of hedge fund Greenlight Capital, increased his holding of Seagate Tech (STX) 58.99 percent at the average price of $22.75 on June 1, according to GuruFocus Real Time Picks.

Ireland-based Seagate Technologies the world’s leading provider of hard disk drives based on revenue, which Einhorn has been building a sizable position in recently. He originally bought 3,268,957 shares in the first quarter of 2011 at an average price of $14 per share. In the second quarter he added 8,236,416 shares at an average price of $16. In the third quarter he bought 2,943,600 shares at an average price of $13, and in the first quarter of 2012 he bought 89,153 shares at an average of $25. His most recent purchase on June 1 was of 8,575,900 shares and brought his holding to a total of 23,114,026 shares.

Over the last year, Seagate’s stock has gained 51 percent. In the third quarter ended March 30, 2012, the company had revenue of $4.5 billion, shipping 60.7 million units with an ASP of $73 per unit. This was up from $2.7 billion the previous year due to higher volumes including its first full quarter of Samsung-labeled HDD products, and benign price erosion. Seagate bought Samsung’s hard drive business in December 2011 for $1.4 billion.

The company also reported net income of $1.1 billion, up from $93 million in the third quarter of 2011, and marking its fourth consecutive quarter of earnings growth. Gross margins expanded to 36.9 percent, from 19.1 percent the previous year, and also marking its fourth consecutive quarter of gross margin expansion.

"Seagate delivered strong performance this quarter by concentrating our efforts toward supporting our customers as the recovery of the hard drive industry continues to progress," said Steve Luczo, Chairman, President and CEO. "Importantly, during this challenging period, Seagate has successfully transitioned its portfolio to industry-leading products across all markets thereby positioning the company for continued leadership through operational excellence."

David Einhorn commented on Seagate Technologies in his first-quarter 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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Rating: 4.0/5 (8 votes)

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