Seagate Technology PLC (STX): Don’t Fear the Uncertain Future of This Company’s Technologies

Seagate Technology PLC (NASDAQ:STX) has performed very well lately, with shares up by around 30% year-to-date. The last time I wrote about Seagate was in late January, and I wrote about how undervalued the company was at the then-current share price of around $36. Fast-forward about six months, and while it appears that I was correct on a short-term basis, I’m in this game for the long haul! With the company set to report earnings on Wednesday, July 24, now may be a very opportune time to revisit Seagate Technology PLC (NASDAQ:STX) and see whether it is still a bargain ahead of earnings, or whether investors should take profits and look elsewhere.

A bit about Seagate…

One of the world’s largest makers of hard drives, Seagate Technology PLC (NASDAQ:STX) released the first 5.25” hard drive in 1980, with a whopping 5 MB (yes, that’s megabytes!) of capacity. The company has evolved with the technology, and has done very well, announcing in March that it had shipped its 2 billionth hard disk drive.

Seagate Technology PLC (NASDAQ:STX) has been an industry leader over the years, being the first to introduce high-speed hard drives to break the 7,200 (in 1991), 10,000 (in 1996), and 15,000 (in 2000) rpm benchmarks. More recently, the company has been breaking capacity records and in late 2011 introduced the first 4 TB single disk hard drives.

The main concern in regards to Seagate’s future is the transition to solid-state storage, but Seagate seems to be emerging as an industry leader in this area as well. While the majority (around 80%) of Seagate’s sales comes from traditional hard drives, this is a legitimate cause for concern, but I think that traditional hard drives will rule the market for a few more years, at least until solid-state drives become a bit more cost-efficient. Seagate has been a pioneer so far, producing the first hybrid drive and now has a complete lineup of hybrid and fully solid-state drives. However, it is the uncertainty of the future of this sector that has caused Seagate Technology PLC (NASDAQ:STX) to trade at a very attractive value in the past.

The numbers still look good

Even after the incredible gains of not only this year, but the past few years (Seagate trades as low as $2.98 per share in 2009), Seagate still looks very cheap. Shares trade for just under 9 times 2013’s expected earnings of $5.29 per share, which has been revised upward since my last article on the company. The consensus calls for earnings to grow to $5.46 and $5.84 per share in 2014 and 2015, respectively, but this is a very loose usage of the word “consensus.” Analysts are very much in disagreement when it comes to Seagate’s future, with estimates varying widely. For example, in 2015, analyst estimates range from a low of $4.13 per share to a very bullish prediction of $7.43 per share.

It is this uncertainty that is causing Seagate Technology PLC (NASDAQ:STX) to trade for such a low P/E. Additionally, Seagate is one of the best dividend payers in the tech sector, currently yielding 3.2%. The company also has an aggressive share repurchase program that has been a huge driver of value. In fact, since 2010, the total number of outstanding shares has dropped from 514 million to 358.6 million, a staggering 30% reduction in just three years.