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Value Bulldog
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I am a research analyst for a long/short value-oriented hedge fund. Most of my attention is focused on the tech, telecom and media sectors although I occasionally look for value (or its opposite) in other areas. Note that I take long and short positions in the stocks I discuss on Seeking Alpha.... More
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  • STX: What little difference 8 years makes 0 comments
    Jul 23, 2010 3:36 PM | about stocks: STX, WDC

    Near the end of 2002, disk drive industry leader Seagate went public (again) following its very successful buyout by Silver Lake Partners and Texas Pacific Group. In its fiscal year ending June 2002 Seagate had about $6.1B of revenue and $374M of operating income. The offering priced at $12.00, and at its highs more than doubled over the next year.

    Fast forward to 2010. Over the last eight years, Seagate has grown revenue to $11.4B in the fiscal year ending June 2010, a CAGR of about 8%- a respectable but not spectacular number. During this time operating margins expanded through the industry's boom and bust cycles such that Seagate reported $1.9B in operating income in fiscal 2010 for a 17% operating margin, up considerably from 2002's 6%.

    So, after 8 years in which the company nearly doubled revenue and quintupled operating income, how did investors do? Today the stock sits at around $12.80 for a measly total return of 7%. True, operating margins are headed down in fiscal 2011, but even the most bearish estimates don't have the company at a much below 10% operating income. As far as I can tell all the Internet content being created still has to be stored somewhere.

    Seagate is an amazing example of the multiple compression that has taken place in large cap tech over the last few years. This can also be seen in MSFT and peer WDC as well as even GOOG and AAPL. With Seagate and Western Digital trading at mid to low single digit P/E multiples, one has to wonder if Silver Lake and/or TPG are thinking of taking another bite at the apple.

    Disclosure: Long STX

    Stocks: STX, WDC
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