Seagate Likely For Upside, Courtesy HDD Market Recovery & Cost Efficiencies, Analyst Says

Morgan Stanley analyst Erik Woodring reiterates an Overweight rating on Seagate Technology Holdings PLC STX with a price target of $72.
The analyst highlights signs of a slightly slower March quarter production ramp, but Q/Q recovery in March and June remains on track in a Tuesday note titled "Seagate Technology: Slightly Shallower March Q Ramp, But HDD Recovery Continues to Progress."
He believes that the data implies that the operating environment in the March quarter was more challenging than previously expected, and he is reducing his March and June quarter revenue by ~5% to account for this dynamic, with adjustments to gross margins and operating expenses resulting in more significant cuts to EPS in each quarter.
However, Erik remains confident that STX's HDD recovery is still progressing. The Morgan Stanley STX Nearline Exabyte (EB) tracker points to Q/Q production and shipment improvements in the March and June quarters off the December quarter trough.
Erik's re-rating reflects STX returning to mid-$6 of through-cycle earnings power (i.e., in CY24) via a combination of an HDD market recovery of the December quarter lows, gross margins ramping back to the mid-to-high 20% range, and STX protecting the bottom line and cash via operating expense efficiency.
Price Action: STX shares traded lower by 0.81% at $65.22 on the last check Tuesday.

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