"We think STX lowered the bar more than enough in August (with FQ4 results) given a slower than expected start to its acquisition of MXO in the form of high initial dilution to EPS."
So, incredibly, evidently the dilutive effects to STX from MXO was an actual surprise to ML!
"Our $25 price target for Seagate (STX, $22.09, C-1-7) assumes the shares trade to around 10X the annual EPS run rate achievable by year end."
Yet STX is projecting considerably less: >>Seagate expects financial results of $11.8-12.3 billion in revenue and $1.90- 2.00 for Non-GAAP diluted earnings per share. Including approximately $200 million of expected acquisition related costs, GAAP diluted earnings per share would be $1.58-$1.68.<<
"excellent free cash flows"
IS ML confusing operating cash flow with free cash flow? Probably, given that sentence followed discussion of EBITDA.
Last I checked interest, taxes, and depreciation (assuming STX is replacing the equipment that is depreciating) are cash outflows.
STX is in a capital equipment intensive business (like INTC). And like INTC, the continued investment in capital equipment precludes "excellent free cash flows"
"We continue with our Buy rating" "$25 price target for Seagate (STX, $22.09"
ML's upside gain is 11.6%. What's the downside risk? What if STX trades at 10 times actual earnings? $16! Excluding MXO expense, $19!
The analysts that downgraded STX to hold have a higher price target than ML with a buy! |
