STX, Seagate Technology Holdings PLC

Will it survive?

• Can it pay its interest? 14.4×
  Comfortable
  Operating income $4.1B ÷ interest expense $284M
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? $2.6B · 0.6× operating profit
  Modest net debt
  Cash $1.7B − debt $4.3B
  What this means

  Netting $1.7B of cash and short-term investments against $4.3B of debt leaves $2.6B owed, about 0.6× a year's operating profit (1.1× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 36d
  Tight
  DSO 46 + DIO 86 − DPO 96 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 30%
  Very high (≥25%) through the cycle
  10-yr median, range -8%–87%; 74% latest = NOPAT $3.5B ÷ invested capital $4.8B
  Industry peers: median -5%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 74% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 11%
  Solid through the cycle
  10-yr median margin, range 8%–25%; latest $3.1B = operating cash $3.7B − maintenance capex $569M
  Industry peers: median 12%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 25% of revenue this year, a 11% median across 10 years. Treating stock comp as the real expense it is (less $213M of SBC) leaves $2.9B.

• Are earnings backed by cash? 1.15×
  Cash-backed
  Cash from ops $3.7B ÷ net income $3.2B
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 26%
  Reinvests most of it
  Dividends + buybacks $810M ÷ Owner Earnings $3.1B — this fiscal year
  What this means

  Of $3.1B Owner Earnings, $810M (26%) went back to shareholders, $634M dividends, $176M buybacks. But the buybacks barely exceed stock issued to employees ($213M SBC), net of dilution, little was truly returned. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does. This year's proportion is 26%; across the record (2017–2026) it is 102%, the capital-allocation section below.

• Investing or harvesting? 2.06×
  Expanding
  Capex $569M ÷ depreciation & amortization as filed $276M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• Is the buyback buying ownership, or mopping up? 1.7%
  The count is rising
  Stock compensation $213M (fiscal 2026), 1.7% of revenue · repurchases $176M · diluted shares +10.6% since 2023
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 2 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Pass
  Revenue ≥ $2B · $12.2B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Near
  Current ratio ≥ 2× · 1.67×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Miss
  Debt ≤ working capital · $4.3B vs $2.1B WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Near
  A profit every year (10-yr record) · 1 loss year
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Pass
  Uninterrupted dividends · paid every year (10)
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Near
  Earnings +33% over the record · +26%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $7.34/share (latest year $14.05), the averaged base the calculator's gate runs on, and book value is $9.56/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2017–2026

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 9 of 10
  What this means

  Lost money in 1 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 8 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 13% → 20% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 13% early to 20% lately, median 14% — pricing power intact or improving.

• Reinvestment, incremental ROIC returns capital
  What this means

  The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.

• Owner earnings growth +2%/yr
  What this means

  Owner earnings grew about 2% a year over the record.

• Worst year 2023 · −4.6% op. margin
  What this means

  Operations went underwater in 2023, understand why before trusting the good years.

• Share count −2.9%/yr
  What this means

  The share count is shrinking, buybacks are quietly growing your slice of the business.

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.