Seagate Had A Strong Q4, But Some Analysts Have Lowered Price Targets on the Stock - Here's Why

Seagate Technology Holdings STX stock is trading higher Thursday following upbeat Q4 results.

Credit Suisse analyst Shannon Cross maintained Seagate with a Neutral and lowered the price target from $52 to $49.

Seagate reported 4Q23 revenue and non-GAAP EPS of $1.60 billion and -$0.18, below her recently reduced estimates of $1.61 billion and -$0.32 and consensus of $1.68 billion and -$0.27. HDD demand remains pressured due to inventory digestion and ongoing budget scrutiny, which Seagate expects to last through the end of CY23. 

The liquidity concerns have eased as the company reduced its debt with no meaningful debt due in the next two fiscal years. While Cross is positive on the long-term drivers of storage demand, she lowered her target price as she awaits signs that customer demand is returning following six quarters in a row of reduced guidance. 

Wedbush analyst Matt Bryson reiterated Seagate with a Neutral and a $55 price target.

As predicted, STX missed the prior consensus. Lighter nearline shipments tied to softer U.S. hyper-scale and enterprise demand dynamics primarily contributed to weaker sales. 

STX management noted that customers across both end markets appear to be working to optimize storage usage. 

And in-line with our prior comments, management said that they expect this dynamic to continue to weigh on fundamentals through the remainder of this year, with tighter budgets and prioritization on building AI capabilities weighing on the funding available for storage spend. STX guided well below prior consensus estimates, which had previously assumed a rebound in demand into the 2H. 

Still, STX managed to moderate the bottom line's negative impact through tight cost controls. 

Rosenblatt analyst Kevin Cassidy maintained Seagate with a Buy and lowered the price target from $70 to $68.

While market demand remains weak, Cassidy is impressed with management's initiatives to lower costs and improve profitability. Not only has production been reduced to 25% of the recent peak, but also, management has started a price adjustment campaign and is changing to a build-to-order process to align capacity with demand. 

Cassidy agreed with management's view that mass storage requirement for generative AI. Cloud Service Providers are currently spending on compute/GPU systems and will eventually need to add a storage system to store data. He modeled a U-shaped recovery for the Seagate income model with above seasonal growth starting the second half of FY24. He recommended owning the STX shares ahead of this rebound.

Benchmark analyst Mark Miller maintained a Hold rating on Seagate.

Seagate reported lower-than-expected sales for its June quarter and a smaller-than-expected loss. Due to the continued expected weakness in U.S. cloud sales at some large customers, the current conditions are likely to persist for a couple more quarters. 

Miller now sees the recovery pushed back until 2024 and expects more minor losses in the September quarter. However, he sees a gradually improving picture as he exited this year, leading to higher sales and margins in 2024. Miller projected FY24 non-GAAP EPS of $2.15. 

Price Action: STX shares traded higher by 6.55% at $61.76 on the last check Thursday.

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