STX - Seagate jumps ~7% as analysts identify positives in FQ4 report Western Digital also gains

2023-07-27 15:39:08 ET

Seagate Technology ( NASDAQ: STX ) stock rose nearly 7% on Thursday, as analysts and investors focused on the positive aspects of the data storage company's largely expected weak quarterly results.

STX posted a FQ4 revenue decline of nearly 40% Y/Y to $1.6B, missing estimates by $90M. The memory industry in general has been beset by inventory build-up issues as demand for products has dried up.

"Our fourth quarter and fiscal 2023 performance reflected the uneven pace of economic recovery in China, cloud inventory digestion, and cautious enterprise spending amid the uncertain macroeconomic environment," STX CEO Dave Mosley said in a statement.

The maker of computer hard drives also provided soft guidance for FQ1. It anticipates posting an adjusted loss per share of $0.16, plus or minus $0.20. The consensus EPS estimate is -0.02. Meanwhile, revenue is expected to be $1.55B, plus or minus $150M, compared to a consensus estimate of $1.66B.

"Looking ahead, we expect the macro end-to-end market conditions that we have flagged throughout fiscal 2023 to continue weighing on demand through at least December," top boss Mosley said on the earnings conference call.

However, Seagate's ( STX ) quarterly adjusted loss per share of 18 cents came in better than expected, with the consensus figure being a loss of 25 cents.

"Despite (the) disappointing revenue outlook, STX did manage to moderate the negative impact on the bottom line through tight cost controls," Wedbush analyst Matt Bryson said, while maintaining a Neutral rating on the stock with a PT of $55.

Bryson sees "no reason to shift to a negative view as, we believe the HDD market has now likely found a bottom for nearline shipments and while we are uncertain STX will be able to raise pricing (per its goal) we do believe pricing dynamics also have likely stabilized."

STX CEO Mosley on the earnings conference call did say that the company would adjust its pricing as part of additional measures to "weather the near-term business environment."

Barclays analysts Tom O’Malley and Blayne Curtis said cycle recovery for STX continued to be pushed out, but they still saw an improving 2024 with a protected dividend.

"Weaker results weren’t surprising but the preservation of cash flow was a mild positive (guided positive FCF indefinitely) ... The company also talked about a more aggressive pricing strategy, which represents a strategy we actually support," O’Malley and Curtis added. The analysts maintained their Overweight rating on STX stock.

Shares of Seagate ( STX ) were up 6.8% to $61.93 in late afternoon trade. The stock was among the top percentage gainers on both the S&P 500 ( SP500 ) and the Nasdaq Composite ( COMP.IND ). Rival Western Digital ( WDC ) also received a boost, rising 7.1% .

More on Seagate

• STX FQ4 earnings presentation
• STX Quant rating
• STX growth metrics
• Avoiding Seagate Technology Ahead Of Earnings

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