Lynx Equity recommends Seagate and Western Digital stock ahead of earnings

Investing.com - Lynx Equity has issued a bullish recommendation for hard disk drive (HDD) manufacturers Seagate Technology (NASDAQ:STX) and Western Digital (NASDAQ:WDC), advising investors to take long positions ahead of upcoming earnings reports. Western Digital, currently trading at $126.67, has demonstrated remarkable strength with a 140% return over the past year. InvestingPro analysis indicates the stock is slightly overvalued at current levels, though momentum remains strong.

The research firm notes that lead times for high-capacity HDDs preferred by hyperscale cloud service providers currently exceed one year, with no expectation of improvement soon. These large-capacity drives are on "100% allocation" to hyperscale customers, making them unavailable to enterprise clients who must resort to secondary markets. This demand surge has contributed to Western Digital’s impressive 50.7% revenue growth in the last twelve months, with total revenue reaching $9.52 billion.

According to Lynx Equity, this supply constraint has created significant pent-up demand among enterprise customers. Despite both stocks more than doubling since early 2024, the firm expects continued strong performance and views recent sideways trading as an opportunity to participate in further upside. With Western Digital’s earnings report due on October 30, InvestingPro subscribers can access detailed financial health scores and 12 additional ProTips to make informed investment decisions.

The firm also identified potential beneficiaries in the broader technology ecosystem, noting that Marvell Technology (NASDAQ:MRVL) should experience positive demand as HDD manufacturers increase production and their need for drive heads grows.

Lynx Equity further suggested that Microsoft (NASDAQ:MSFT) and Amazon Web Services (NASDAQ:AMZN) could benefit from "a powerful storage trend" as they monetize the ongoing HDD upgrade cycle by selling high-value storage services to enterprise customers.

In other recent news, Western Digital has seen several analyst firms adjust their price targets and ratings following notable developments. The company’s June quarter results were strong, with reported revenue of $2.61 billion. Looking ahead, Western Digital has provided guidance for the September quarter, anticipating $2.70 billion in revenue and $1.54 in earnings per share, surpassing consensus estimates of $2.55 billion and $1.42, respectively. Mizuho raised its price target for Western Digital to $120 from $87, maintaining an Outperform rating, driven by robust demand for hard disk drives through year-end, supported by the company’s UltraSMR technology.

Rosenblatt also increased its price target to $125 from $90, citing a full backlog of orders and rising average selling prices per drive. Benchmark adjusted its price target to $115 from $85, noting extended lead times for high-capacity drives due to strong demand. Additionally, Bernstein SocGen initiated coverage with a Market Perform rating and a price target of $96, highlighting Western Digital’s valuation and potential benefits from cyclical strength in hard disk drives.

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