Evercore ISI has increased its price target for Seagate Technology (NASDAQ: STX) to $135.00 from $125.00 while maintaining an Outperform rating.
The firm highlighted Seagate's impressive performance in the recent quarter, with revenue and earnings per share (EPS) surpassing consensus estimates. Seagate reported revenues of $2.17 billion and EPS of $1.58, which exceeded the anticipated $2.13 billion and $1.48, respectively.
The company experienced a significant year-over-year revenue growth of 49%, driven by a 55% increase in hard disk drive (HDD) sales, which totaled $2.0 billion, and a 3% increase in solid-state drive (SSD) and Systems sales reaching $164 million. Gross margins also saw a notable improvement, expanding to 33.3%, a rise of 240 basis points from the previous quarter and surpassing the Street's expectation of 32.0%.
Seagate's positive results were attributed to the absence of underutilization charges, which were present in the June quarter at $20 million. The firm also noted that core HDD margins in September were estimated to be around 35%.
The industry is currently facing a supply-constrained environment, yet demand for HDD capacity is rising as cloud customers expand their capacity. Seagate shipped 138 exabytes (EB) of capacity, marking a 54% year-over-year increase, with mass capacity shipments comprising 128EB, up 62% from the previous year.
The company anticipates that demand will remain strong through fiscal year 2025 and expects gross margins to continue expanding. This optimism is based on a disciplined pricing environment, the tailwinds from Heat-Assisted Magnetic Recording (HAMR) technology, and revenue leverage. Seagate foresees qualifications with their leading cloud customer for HAMR technology to be completed soon, with volume ramps starting in mid-2025. They are also engaging with other cloud service providers for qualifications, expecting broad volume ramps around the same time.
In other recent news, Seagate Technology has been the recipient of multiple analyst upgrades. Evercore ISI adjusted the stock's price target to $135 from $125, citing Seagate's significant outperformance in the September quarter, with revenues and earnings per share (EPS) surpassing consensus estimates.
BofA Securities, Loop Capital, and Morgan Stanley also revised their price targets for Seagate, citing potential revenue and margin recovery, strong hard disk drive supply and demand dynamics, and significant growth potential.
Seagate reported revenues of $2.17 billion and EPS of $1.58 for the September quarter, surpassing 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.
In other company news, Seagate's shareholders approved executive pay and the re-allotment of shares during the recent Annual General Meeting. The company also announced that Robert A. Bruggeworth, a member of the Board of Directors, will not stand for re-election at the upcoming Annual General Meeting of Shareholders.
InvestingPro Insights
Seagate Technology's recent performance aligns with several InvestingPro metrics and tips, providing additional context to the company's strong quarterly results and positive outlook. The company's revenue of $6.551 billion over the last twelve months, despite an 11.28% year-over-year decline, shows resilience in a challenging market. This is further supported by an InvestingPro Tip indicating that analysts anticipate sales growth in the current year, which corroborates Seagate's own expectations of continued strong demand through fiscal year 2025.
The company's profitability is highlighted by its gross profit margin of 23.65% and operating income margin of 6.73% over the last twelve months. An InvestingPro Tip suggests that Seagate is trading at a low P/E ratio relative to near-term earnings growth, which could be attractive to investors considering the company's positive outlook and potential for margin expansion.
Seagate's dividend yield of 2.49% and its track record of maintaining dividend payments for 14 consecutive years, as noted by another InvestingPro Tip, may appeal to income-focused investors. This consistent dividend policy, combined with the company's strong recent performance and positive future outlook, could contribute to the stock's 77.86% price total return over the past year.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Seagate Technology, providing a deeper understanding of the company's financial health and market position.
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