On Monday, UBS has updated its outlook on shares of Seagate Technology (NASDAQ:STX), raising the price target to $110 from the previous target of $95, while maintaining a Neutral rating on the company's shares. The adjustment follows UBS's analysis of Seagate's financial performance and market position.
In their assessment, UBS projects Seagate's revenue for the June quarter at $1.82 billion with earnings per share (EPS) of $0.67, which is slightly below the consensus estimate of $1.868 billion in revenue and $0.74 EPS. The forecast for Hard Disk Drive (HDD) revenue stands at $1.64 billion, marking an 11.1% increase quarter-over-quarter and an 18.5% rise year-over-year, which is just under the street's prediction of $1.68 billion.
For the Enterprise Data Solutions, Solid State Drive (SSD) & Other segments, UBS expects revenue to be around $179 million, representing an 18% decline year-over-year, aligning with street estimates of $178 million. The non-GAAP gross margin is anticipated at 28.0%, slightly above the street's expectation of 27.9%, with an operating margin (OPM) of 13.7%, compared to the street's forecast of 14.3%.
Looking ahead to the September quarter, UBS's projection for revenue is $2.058 billion with an EPS of $1.04, which is below the street's forecast of $2.067 billion in revenue and $1.13 EPS. HDD revenue is expected to reach $1.84 billion, a 12.3% increase quarter-over-quarter and a significant 42.4% growth year-over-year, whereas the street anticipates $1.88 billion.
The Enterprise Data Solutions, SSD & Other segments are projected to achieve revenues of $215 million, a notable 35% increase year-over-year, surpassing the street's expectations of $187 million. The non-GAAP gross margin is estimated at 28.8% with an OPM of 15.8%, which is slightly conservative compared to the street's projections of 29.0% and 16.2%, respectively.
The revised price target of $110 is based on an unchanged multiple of approximately 15 times the average estimated non-GAAP EPS of $7.08 for calendar years 2025 and 2026, which has been rolled forward from the previous estimate of $6.29 for calendar year 2025.
In other recent news, Seagate Technology reported a significant increase in its fiscal third quarter revenue and earnings per share, with a doubling of the latter figure. The company attributes this success to heightened demand in cloud and enterprise markets.
Analysts from Mizuho, Citi, and TD Cowen have all maintained a Buy rating for Seagate, with a consensus price target of $110. Mizuho has predicted an increase in Seagate's fiscal year 2025 revenue from $8.8 billion to $8.9 billion, and EPS from $5.50 to $5.66.
Citi's positive outlook is based on the recovery in the hard disk drive market and anticipated demand growth driven by artificial intelligence, while TD Cowen's analysis aligns with the company's guidance on demand for nearline HDDs.
Moreover, Seagate is progressing with its 28-terabyte PMR and HAMR-based Mozaic products, which are expected to contribute significantly to the company's performance in the upcoming fiscal year. These recent developments suggest a promising future for Seagate.
InvestingPro Insights
In light of UBS's updated outlook on Seagate Technology (NASDAQ:STX), it's valuable to consider additional insights from InvestingPro. Seagate has shown resilience, maintaining dividend payments for 14 consecutive years and exhibiting a strong return over the last year with a 75.1% one-year price total return. This performance is particularly notable given the company's challenges, such as a sales decline of 25.49% over the last twelve months as of Q1 2023 and weak gross profit margins standing at 20.95%.
InvestingPro Tips suggest that Seagate trades with low price volatility and is a prominent player in the Technology Hardware, Storage & Peripherals industry. Despite concerns about profitability, analysts predict the company will be profitable this year. Moreover, with a market capitalization of $21.8 billion and a dividend yield of 2.74%, the company remains a considerable entity in its sector.
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