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Seagate Technology’s (NASDAQ:STX) stock rose about 5% premarket on Wednesday after fourth quarter results beat estimates drawing positive reactions on Wall Street.
Citi maintained its Buy rating and raised the price target on the stock to $125 from $120.
Analysts noted that Seagate reported sales, gross margins and operating profits significantly above expectations, aided by stronger-than-expected recovery in their cloud customers, which resulted in a shift to higher capacity drives and improved pricing as well as strength in VIA.
The company’s management’s guidance suggests demand strength at cloud customers is expected to sustain, while enterprise original equipment manufacturers, or OEMs, are expected to be stronger in the second half of calender year 2024 with higher capacity On-Premises, or onprem, storage, according to the analysts.
The company noted that its supply for nearline drives is on allocation through 2024 year-end. On Heat Assisted Magnetic Recording, or HAMR, storage tech management reiterated qualifications to be completed at a major cloud customer in September with qualifications at other customers starting in CQ3 (broader shipments expected in mid-CY25), according to the analysts.
In addition, the analysts said that disciplined CAPEX, improving profitability, and expectations for debt paydown ahead are further positives.
Meanwhile, Mizuho reiterating its Outperform rating on STX but raised the price target to $125 from $110.
Mizuho’s analysts said that Seagate reported June quarter better at $1.89B/$1.05 (consensus $1.86B/$0.77) and guided September quarter to $2.1B/$1.40 (above consensus $2.06B/$1.17), gross margins were up 480 bps quarter-over-quarter to 31%, positive for rival Western Digital (WDC).
The analysts noted that the company’s nearline cloud revenue doubled year-over-year, while enterprise/OEM is expected stronger in the second half of 2025 with nearline capacity committed through the end of 2024.
In addition, China VIA HDD demand trending was better than expectations with 24TB Conventional Magnetic Recording, or CMR/28TB Shingled Magnetic Recording, or SMR; HAMR ramping with Mozaic 3+ qualification at lead CSP expected September quarter with multiple U.S./China cloud customer qualifications starting; and 4) Mozaic 4+ enables 33% more capacity at cost parity versus 3+, according to the analysts.
Mizuho raised its estimates as it sees Seagate positioned well into upcycle with strong nearline and HAMR qualifications ongoing.
Rosenblatt maintained its Buy rating and raised the price target to $125 from $115.
Analysts at Rosenblatt noted that demand from cloud service providers, or CSPs, and Video & Imaging Application resulted in demand slightly being above expectations. In addition, the build-to-order strategy allowed for better manufacturing utilization, and increasing prices resulted in non-GAAP gross margins expanding to 30.9% from 26.1% last quarter and 19.5% last year.
The analysts added that manufacturing adjustments made during the downturn are leading to over 30% gross margin at one-third lower revenue. This provides strong earnings leverage.
Rosenblatt noted that it was increasing its estimates for STX, and continues recommending the stock for the company’s HDD technology leadership, operating expertise and investor friendly capital allocation policy.
Shares of Western Digital (WDC), one of Seagate’s main rivals, were up about 2% premarket on Wednesday.
Seagate Technology (STX) has a Strong Buy rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is Hold, but the average Wall Street analysts’ rating is more positive with a Buy.
