On Wednesday, Evercore ISI exhibited confidence in Seagate Technology (NASDAQ:STX), adjusting the stock's price target to $135 from $125 and maintaining an Outperform rating. The firm's analysis highlighted Seagate's significant outperformance in the September quarter, with revenues and earnings per share (EPS) surpassing the consensus estimates. Seagate reported revenues of $2.17 billion and EPS of $1.58, compared to the expected $2.13 billion and $1.48, respectively.
The company's year-over-year revenue growth stood at 49%, driven by a 55% increase in hard disk drive (HDD) sales, which reached $2.0 billion, and a 3% increase in solid-state drive (SSD) and Systems sales at $164 million. Gross margins also saw a notable improvement, expanding to 33.3%—a sequential increase of 240 basis points and higher than the Street's anticipation of 32.0%.
The growth in gross margins was attributed to the absence of underutilization charges, which were present in the June quarter. Seagate's core HDD margins in September were estimated to be around the mid-30% range. The company's shipment of 138 exabytes (EB) of capacity marked a 54% year-over-year increase, with mass capacity shipments accounting for 128EB—a 62% growth compared to the previous year.
Seagate anticipates that demand will continue to be strong through fiscal year 2025, with expectations for gross margin expansion. The company predicts that this uptrend will be supported by disciplined pricing, the introduction of Heat-Assisted Magnetic Recording (HAMR) technology, and revenue leverage. Qualifications for HAMR with a leading cloud customer are expected to be completed soon, with volume ramps anticipated to start in mid-2025.
The report from Evercore ISI suggests that Seagate and the HDD industry are adopting a more disciplined approach, especially regarding the addition of incremental capacity without adequate returns. This strategy is expected to facilitate a cyclical recovery, potentially leading to an EPS of $12+ and supporting the stock's movement towards the $135 target. The firm believes that as investors recognize the structural discipline within the industry, coupled with a cyclical recovery, the valuation of Seagate could further increase.
In other recent news, Seagate Technology Holdings plc has seen a series of significant developments. The company's shareholders have approved executive pay and the re-allotment of treasury shares. Additionally, the company's Board of Directors will undergo a change as Robert A. Bruggeworth announced his decision not to stand for re-election at the upcoming Annual General Meeting.
Financial firms such as BofA Securities, Loop Capital, and Morgan Stanley have revised their price targets for Seagate, indicating potential revenue and margin recovery, strong hard disk drive supply and demand dynamics, and significant growth potential. Rosenblatt Securities also raised their target for Seagate shares to $125, following a reported surge in demand from Cloud Service Providers and the Video & Imaging Application sector.
Seagate's earnings per share for the June quarter surpassed expectations, reaching $1.05. The company also forecasted over $2.1 billion in revenue and an EPS of $1.40 for the first fiscal quarter of 2025.
InvestingPro Insights
Seagate Technology's recent performance and positive outlook are further supported by real-time data from InvestingPro. The company's market capitalization stands at $23.71 billion, reflecting investor confidence in its growth trajectory. Seagate's revenue for the last twelve months as of Q4 2024 was $6.551 billion, with a notable quarterly revenue growth of 17.79% in Q4 2024, aligning with the strong performance mentioned in the article.
InvestingPro Tips highlight that Seagate is expected to see net income growth this year, which corroborates the company's positive guidance for fiscal year 2025. Additionally, Seagate has maintained dividend payments for 14 consecutive years, demonstrating financial stability and commitment to shareholder returns. The current dividend yield stands at 2.49%, offering an attractive income proposition for investors.
The stock's impressive performance is evident in its 77.86% price total return over the past year, and it's currently trading at 97.68% of its 52-week high. This strong momentum aligns with the article's discussion of Seagate's outperformance and Evercore ISI's increased price target.
For investors seeking more comprehensive insights, InvestingPro offers 13 additional tips for Seagate Technology, providing a deeper understanding of the company's financial health and market position.
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