Seagate (STX) Up 8.7% Since Last Earnings Report: Can It Continue?

It’s been a month since Seagate’s (STX) last earnings report. Shares have risen about 8.7% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Seagate headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Seagate’s third-quarter earnings beat estimates

Seagate reported fiscal third-quarter 2024 non-GAAP earnings of 33 cents per share, topping the Zacks Consensus Estimate by 22.2%. In the same quarter last year, the company reported a non-GAAP loss of 28 cents per share.

Management expected fiscal third quarter 2024 non-GAAP earnings of 25 cents (+/- 20 cents).

Non-GAAP revenues of $1.655 billion missed the Zacks Consensus Estimate by 0.7%. Year-on-year, this number decreased by 11%. However, revenues increased 6% sequentially. Management forecasted revenues of $1.65 billion (+/- $150 million).

The company then saw massive improvements in compute demand thanks to stronger nearline cloud demand, which offset seasonal declines in VIA’s market. Nearline’s cloud revenues increased due to higher sales to cloud customers in the United States and China combined with solid enterprise demand.

Detailed information about exabyte shipments

In the reported quarter, Seagate shipped 99.1 exabytes of HDD storage, down 16% year-over-year. However, this represented a sequential increase of 4%.

Average storage capacity increased 7% year over year and 6% sequentially to 8.7 TB.

The company delivered 88.5 exabytes to the high-capacity storage market (including nearline applications, video and imaging applications, and networked storage). This represents a 15% year-over-year decline in exabyte shipments. However, exabyte shipments increased 6% sequentially. Average storage capacity per drive increased sequentially to 12.5 TB from 11.9 TB.

In the market, Nearline sold 71.7 exabytes of hard drives, down 17% year-over-year but up 10% sequentially.

Seagate shipped 10.6 exabytes to the legacy market (which includes notebooks, desktops, game consoles, digital video recorders or DVRs and mission-critical external consumer devices), down 28% year-over-year and 11% sequentially. Average capacity increased 11% year over year to 2.5 TB.

Revenue by product group

Total HDD revenue (89% of revenue) declined 8% year-over-year to $1.477 billion in the reported quarter. On a sequential basis, revenues increased by 7%.

Systems, SSDs and Others (11%), which includes enterprise data solutions, cloud systems and solid-state drives, revenue was $178 million, down 30% year-over-year but up 4% year-over-year. sequential.

Our revenue estimates for the HDD and non-HDD segments were $1.443 billion and $183.1 million, respectively.

Margin details

Non-GAAP gross margin increased to 26.1% from 18.7% in the prior-year quarter.

Non-GAAP operating expenses decreased 12% year-over-year to $249 million.

Total non-GAAP operating income was $183 million, up from $65 million a year earlier. Non-GAAP operating margin increased to 11.1% from 3.5% in the prior-year quarter.

Balance sheet and cash flow

Cash and cash equivalents were $795 million as of March 29, compared to $787 million as of December 29, 2023.

As of March 29, long-term debt (including the current portion) was USD 5.671 billion, compared to USD 5.669 billion as of December 29, 2023.

Cash flow from operations and free cash flow were $188 million and $128 million, compared to $169 million and $99 million, respectively, in the prior quarter.

It paid $147 million in dividends in its fiscal third quarter. The company ended the quarter with 210 million shares outstanding.

Perspectives

Management anticipates fourth-quarter fiscal 2024 revenues of $1.85 billion (+/- $150 million). Gradual improvement in the mass power market, especially nearline cloud and enterprise nearline products, as well as increased demand in VIA markets are expected to drive revenue growth.

For VIA, management expects demand to remain stable throughout 2024, with smart cities being the biggest end-market opportunity. Seagate forecasts similar performance in the June quarter across legacy and non-hard drive markets.

Non-GAAP earnings for the fiscal fourth quarter are expected to be 70 cents per share (+/- 20 cents).

Seagate anticipates fiscal 2024 capital expenditures to be at or below the low end of its long-term target range of 4% to 6% of revenue.

Non-GAAP operating costs are suggested to be $260 million. Management expects non-GAAP operating margin to increase in the mid-teens percent revenue range (including underutilization costs of $20 million) midway through its revenue forecasts.

How have estimates changed since then?

Investors have witnessed an upward trend in estimate revisions over the last month.

As a result of these changes, the consensus estimate moved by 64.11%.

VGM results

Currently, Seagate boasts a high growth rate of A, which is a rating with the same score in terms of dynamics. However, the stock is rated C for value, ranking in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. It’s no surprise that Seagate has a Zacks Rank of #2 (Buy). We expect an above-average rate of return on shares in the coming months.

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