Seagate Technology (STX) stock rose Tuesday ahead of its fiscal second quarter earnings report later today. The data storage company was named “top pick” among IT hardware stocks by analysts at Morgan Stanley, replacing Apple (AAPL).
Morgan Stanley analyst Erik Woodring said in a client note Tuesday that he is taking a “contrarian view” in elevating Seagate to top pick. Shares of Seagate, the world’s largest manufacturer of hard-disk drives, slumped nearly 20% in the final months of the 2024. The company gave lower-than-expected core profit guidance during its previous earnings report in October. Shares fell further in December after Seagate notified investors of a delay in ramping up production.
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“We have gained more comfort in (the) HDD (hard-disk drive) cycle persisting, which alongside transitory near-term supply issues, can create a June quarter revenue snapback,” Woodring wrote. Wall Street estimates for Seagate’s gross margin are also “too conservative” in Morgan Stanley’s view, the note added.
Woodring also reiterated a positive overweight rating but lowered his price target for STX stock to 129, from 133, to account for changes in the analyst’s financial model for Seagate. His overall thesis is that the company will benefit from “accelerating data growth, which drives storage demand in the cloud and on-premise.”
Meanwhile, Seagate is replacing Apple as Woodring’s top pick.
“We want to be clear that we are still overweight (on) Apple with an unchanged $273 price target, and remain believers in our thesis for an accelerating device replacement cycle, structurally stronger gross margins, and consistent services growth,” Woodring wrote. “However, we believe that the prospects for STX outperformance over the next 3-6 months are higher than for AAPL (along with greater upside to our STX price target), even after Apple’s recent underperformance, which is why we now make STX our Top Pick within our IT Hardware coverage.”
Seagate Earnings Expectations
On the stock market today, Seagate stock gained more than 3% to 101.32. Shares retook their long-term 200-day moving average with the gains Tuesday. Overall, Seagate has rallied 17% in January after falling 15% in December.
Seagate is expected to published its December quarter results after the market closes today. Analysts polled by FactSet are projecting Seagate’s adjusted earnings will surge to $1.88 per share, compared to 12 cents per share for the same quarter in 2023. Sales are projected to increase 49% to $2.32 billion, per FactSet.
Even with the late slump, 2024 contributed to a rebound for Seagate stock after a deep slump. The stock struggled in 2022 and for the first half of 2023, amid a hard drive supply glut and slowing demand from PC makers.
Demand from data centers and excitement about AI helped the stock rally back to double its value from a low-point at the end of 2022.
Seagate Stock In Consolidation Pattern
Seagate stock is trading within a consolidation pattern with a buy point of 115.32, according to MarketSurge. The potential entry represents a three-year-high that Seagate stock reached on Oct. 15.
Seagate’s recent slump has dragged down its IBD Composite Rating to 65 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
While Seagate’s earnings rebound give it an EPS Rating of 81 out of 99, its slump late last year has dragged down its Relative Strength rating. Seagate’s Relative Strength Rating is 46 out of 99. The RS Rating means that Seagate has outperformed 46% of all stocks in IBD’s database over the past year.
