Seagate Technology (NASDAQ:STX) shareholders do not seem to mind that the company guided downward for the third quarter. Instead, they looked to the Q2 EPS beat and stable capacity. Even though stocks are up around $10 from lows, the stock is inexpensive at 6.7 times earnings. And the dividend yield of 5.6% is enough to keep investors from selling the stock.
Seagate earned $1.34 a share (GAAP) on revenue of $2.7 billion. Gross margin of 29.2% is within the 28% - 32% range established since Q2/2017 – Q2/2019. Enterprise average capacity per drive is actually higher over the last two years, while edge non-compute storage is flat. So long as enterprise storage levels hold up as the economy slows in the next two quarters, Seagate stock should not fall by much.
Seagate’s balance sheet shows no red flags. Debt of $4.3 billion did not change much and is down by $500 million since last year. Free cash flow is down but is still at a solid $571 million level. Expectedly, it will lower total capital expenditure at the low end of its long-term range of 6%-8% of revenue.
Seagate shares suit value investors, as does Western Digital (NASDAQ:WDC) and Micron Technology (NASDAQ:MU). Covered option calls or averaging into the position should keep the average share cost of investment down should shares trend lower. But as demand picks up, so will its share price.
