BofA Securities, on Wednesday, increased its price target on Seagate Technology (NASDAQ: NASDAQ:STX) to $125 from the previous $110, while maintaining a "Buy" rating on the back of the secular demand trends from cloud services, potential revenue, margin recovery from trough levels, and the pathway to higher capacity heat-assisted magnetic recording (HAMR) hard disk drives (HDDs).
The firm's positive outlook follows Seagate's announcement at a technology conference in June, where they pre-announced a strong performance for the June quarter. The actual earnings per share (EPS) for the quarter came in at $1.05, surpassing even the high end of the company's guidance.
Seagate's revenue and EPS guidance for the first fiscal quarter of 2025 also exceeded expectations, with forecasts of over $2.1 billion in revenue and an EPS of $1.40, plus or minus $0.20. This guidance comes despite a conservative gross margin (GM) midpoint guide of 32%, compared to 30.9% in the fourth fiscal quarter. The expected GM does not include underutilization charges, which amounted to $20 million in the prior quarter.
The firm anticipates that gross margin will benefit from an improved product mix and higher pricing, driven by supply and demand dynamics. Notably, nearline capacity is committed through the end of the calendar year 2024, with lead times increasing. Seagate is also expected to see a rise in mass capacity revenue in the September quarter, while revenue from legacy products is projected to decline.
For the first fiscal quarter of 2025, BofA Securities forecasts operating margin (OM) to reach the high teens as a percentage of revenue, marking an improvement of 190 basis points quarter over quarter. This is expected in spite of anticipated higher operating expenses, which are estimated to be around $270 million due to increased variable compensation expenses.
Meanwhile, Loop Capital raised its price target for the company to $135. The firm's analysis indicates potential for significant growth in the long term. Similarly, Morgan Stanley (NYSE:MS) increased their price target for Seagate to $133, based on strong hard disk drive supply and demand dynamics, which they believe will drive pricing growth and margin expansion.
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. Meanwhile, Benchmark maintained its Hold rating on Seagate, citing better-than-expected results and an optimistic forecast for the first quarter of fiscal year 2025.
InvestingPro Insights
Seagate Technology's (NASDAQ:STX) recent performance and optimistic guidance have caught the attention of investors and analysts alike. BofA Securities' upward revision of Seagate's price target to $125 aligns with the company's strong fundamentals and market position. According to InvestingPro data, Seagate boasts a robust market capitalization of $22.87 billion, reflecting investor confidence. While the company's P/E ratio stands at a high 66.65, the PEG ratio of 0.41 suggests that Seagate's earnings growth may justify the higher P/E ratio in the near term. Additionally, the company has shown a commendable revenue growth of 17.79% in the last quarter of 2024, indicating a positive trend in its financial performance.
InvestingPro Tips highlight Seagate's anticipated sales growth and expected net income growth this year, which could be a driving force behind the firm's optimistic outlook. Moreover, Seagate's consistent dividend payments for 14 consecutive years, coupled with a strong return over the last year, underscore its reliability and potential for long-term growth. For investors looking to delve deeper into Seagate's financial health and future prospects, additional tips are available on InvestingPro, which currently lists 14 more tips for STX. To access these insights and more, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. Seagate's strategic position in the Technology Hardware, Storage & Peripherals industry and its solid track record of returns make it a noteworthy consideration for market watchers.
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