WDC - Seagate slips again as Morgan Stanley downgrades on 'elevated uncertainty'

2023-04-21 07:48:12 ET

Seagate Technology ( NASDAQ: STX ) shares slipped around 1% in premarket trading on Friday as Morgan Stanley downgraded the storage company after its third-quarter results forecast a longer-than-expected recovery.

Analyst Erik Woodring lowered his rating on Seagate Technology ( STX ) shares to equal-weight from overweight and cut the per-share price target to $60, noting that while the stock is still the best way to play the recovery in hardware, economic conditions have got worse over the past several weeks.

"STX's more cautious commentary suggests the [hard-disk drive market] recovery has been pushed out 2+ qtrs, [with visibility and timing] of a recovery more limited," Woodring wrote in an investor note. "As a result, we believe path to outperformance has also been pushed out, with risk more elevated [near-term]."

Seagate Technology ( STX ) unveiled a new cost cutting initiative in light of weaker-than-expected third-quarter results and guidance.

As part of the new plan, Seagate ( STX ) said it expects to see a run-rate savings of $200M on an annualized basis, starting in the first-quarter of fiscal 2024. It expects to take a pre-tax charge of around $150M as part of the restructuring.

In conjunction, Seagate ( STX ) reported weak third-quarter results, with CEO Dave Mosley placing the blame on a "more elongated customer inventory correction" that resulted in weaker-than-expected demand from a few large customers late in the quarter.

Seagate ( STX ) expects fourth-quarter sales to be between $1.55B and $1.85B in revenue, with adjusted earnings per share forecast to be between negative 40 cents and breakeven. Analysts were forecasting an adjusted gain of 53 cents per share and $2.08B in sales.

On Wednesday, Seagate Technology ( STX ) said it agreed to a $300M settlement with U.S. authorities over shipments of hard disks to China's Huawei which violated export control laws .

Analysts are largely cautious on Seagate Technologies ( STX ). It has a HOLD rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates STX a HOLD .

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