Huh? Seagate (STX) for $25? - Barron's
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Let's lay it out flat...Barron's thinks that $16 per share for Seagate Technology (NYSE: STX) is akin to someone robbing you in your own home, and then kicking your dog on the way out.
Except in this instance, the dog is the shareholder.
An offer of $16 per share is just an 8x multiple of the $2 that STX is expected to earn in FY11, and about 5x of the $3.14 expected for FY10.
In March, shares traded a little over $21, seeing a 52-week high of $21.58 on March 2.
With STX generating just over $2.5 billion of EBITDA for FY09, the offer comes in at a surprisingly low level of three times cash flow. Most LBOs are done at seven to eight pre-tax flows and 15x post-tax cash flows.
Some arguments against a higher valuation come from the surge of tablets, from Apple (Nasdaq: AAPL) to Hewlett-Packard (NYSE: HPQ), entering the market, pushing out the need for lower-end PCs and netbooks. Seagate's forte, disk-drives, may come under pressure, as Apple's tablet, the iPad, doesn't utilize them.
However, Barron's argues that PCs still are a hot commodity, and with three companies taking 80% of the disk-drive market (Seagate, Hitachi (NYSE: HIT), and Western Digital (NYSE: WDC)), pricing should be more rational.
One other thought is that an offer below $20 would face shareholder opposition, and draw in activist investors like Carl Icahn, or even peak the attention of more strategic investing within the industry.
With $2.5 billion in cash and debt, Barron's suggests that one alternative may be to buy back a large chunk of its outstanding stock at the offering price of $16, giving upside to shareholders, and not some lowballing LBO group.
As we noted earlier, some of the best on the Street are pegging the price at or around $16. Needham & Company recently raised their price target from $15 to $20 today, reiterating a Strong Buy on the company.
Oh, and the robbers? They ate your Oreos, too.
Except in this instance, the dog is the shareholder.
An offer of $16 per share is just an 8x multiple of the $2 that STX is expected to earn in FY11, and about 5x of the $3.14 expected for FY10.
In March, shares traded a little over $21, seeing a 52-week high of $21.58 on March 2.
With STX generating just over $2.5 billion of EBITDA for FY09, the offer comes in at a surprisingly low level of three times cash flow. Most LBOs are done at seven to eight pre-tax flows and 15x post-tax cash flows.
Some arguments against a higher valuation come from the surge of tablets, from Apple (Nasdaq: AAPL) to Hewlett-Packard (NYSE: HPQ), entering the market, pushing out the need for lower-end PCs and netbooks. Seagate's forte, disk-drives, may come under pressure, as Apple's tablet, the iPad, doesn't utilize them.
However, Barron's argues that PCs still are a hot commodity, and with three companies taking 80% of the disk-drive market (Seagate, Hitachi (NYSE: HIT), and Western Digital (NYSE: WDC)), pricing should be more rational.
One other thought is that an offer below $20 would face shareholder opposition, and draw in activist investors like Carl Icahn, or even peak the attention of more strategic investing within the industry.
With $2.5 billion in cash and debt, Barron's suggests that one alternative may be to buy back a large chunk of its outstanding stock at the offering price of $16, giving upside to shareholders, and not some lowballing LBO group.
As we noted earlier, some of the best on the Street are pegging the price at or around $16. Needham & Company recently raised their price target from $15 to $20 today, reiterating a Strong Buy on the company.
Oh, and the robbers? They ate your Oreos, too.
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