David Einhorn's Greenlight Capital Adds to Seagate Stake in Size ~ market folly

Tuesday, June 12, 2012

David Einhorn's Greenlight Capital Adds to Seagate Stake in Size

David Einhorn's hedge fund Greenlight Capital has recently been out buying more shares of Seagate Technology (STX).  Per a 13G just filed with the SEC, Greenlight has disclosed a 5.4% ownership stake in STX with 23,114,026 shares.

Sizable Seagate Stake

These purchases mark almost a 59% increase in their position size since the end of March.  STX shares have fallen from a recent peak of around $32 in May down to current levels of around $22.75 (almost a 30% drop).  This new disclosure was made due to portfolio activity on June 1st.

This activity is interesting because Seagate was already one of Einhorn's top 5 holdings at the end of the first quarter and now they own even more shares.  Not to mention, STX is still trading around (or even slightly below) where Greenlight was recently buying.

Greenlight's Thoughts on STX

From Greenlight's first quarter letter, the hedge fund writes that,

"It is STX's normal practice on earnings calls to provide financial commentary looking ahead only one quarter.  However, in January, STX shared its financial outlook for all of calendar year 2012, forecasting revenues of $20 billion.  The prior consensus was for less than $15 billion.  A good chunk of the increased forecast comes from higher pricing enabled by the industry shortage following the floods in Thailand last year.

STX also announced that it would be using some of its excess cash to ramp up its stock repurchase program, with a target of decreasing outstanding shares by 25%.  When business conditions eventually normalize, the lower share count will enable STX to generate higher earnings per share.

Though the shares advanced from $16.40 to $26.96 during the quarter, the share price remains at a very low multiple of both near-term and longer term earnings.  Based on our somewhat more conservative revenue outlook in 2012, we expect earnings to reach $10-$15 per share this calendar year, before settling at an average of about $5 per share in future years when the industry shortage will have ended."

About Seagate

Per Google Finance, Seagate Technology "designs, manufactures, markets and sells hard disk drives. Seagate produces a range of disk drive products addressing enterprise applications, where its products are designed for enterprise servers, mainframes and workstations; client compute applications, where its products are designed for desktop and notebook computers, and client non-compute applications, where its products are designed for a range of end user devices, such as digital video recorders (DVRs), personal data backup systems, portable external storage systems and digital media systems."

For more resources on this hedge fund, head to David Einhorn's slideshow on use of preferreds as well as notes from Einhorn's Ira Sohn presentation.

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