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Calculating The Intrinsic Value Of Seagate Technology plc (NASDAQ:STX)

Does the share price for Seagate Technology plc (NASDAQ:STX) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after May 2018 then I highly recommend you check out the latest calculation for Seagate Technology here.

Crunching the numbers

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To begin, I took the analyst consensus forecast of STX’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 11.25%. This resulted in a present value of 5-year cash flow of US$6.31B. Want to know how I arrived at this number? Read our detailed analysis here.

NasdaqGS:STX Future Profit May 1st 18
NasdaqGS:STX Future Profit May 1st 18

In the visual above, we see how how STX’s earnings are expected to move going forward, which should give you some color on STX’s outlook. Secondly, I calculate the terminal value, which accounts for all the future cash flows after the five years. I’ve decided to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is US$14.08B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$20.39B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $71.57, which, compared to the current share price of $57.89, we find that Seagate Technology is about right, perhaps slightly undervalued at a 19.12% discount to what it is available for right now.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.

For STX, I’ve put together three essential aspects you should further examine:

  1. Financial Health: Does STX have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does STX’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of STX? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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