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On Monday, Seagate Technology (NASDAQ:STX) shares received a bullish update from Morgan Stanley (NYSE:MS), as the firm raised its price target on the stock to $140 from the previous $99, while keeping an Overweight rating. The stock, currently trading at $112.74, has shown impressive momentum with a 31.7% gain year-to-date and is approaching its 52-week high of $115.32. According to InvestingPro, Seagate maintains a "GOOD" overall financial health score, with particularly strong marks in profit and price momentum metrics. The adjustment follows Morgan Stanley’s analysis, which anticipates a significant rise in storage demand driven by the next wave of computing growth. Seagate, according to the firm, remains an undervalued stock in this sector, trading at approximately 7.5 times its peak earnings per share (EPS).
Morgan Stanley highlighted Seagate’s technological leadership, high profit margins, strong free cash flow generation, and substantial capital returns as factors that support a potential increase in EPS and a re-rating of the stock’s multiple. The firm expects Seagate to benefit from a critical point in data growth and retention, coinciding with a once-in-a-generation opportunity for data center expansion. Recent data supports this optimism, with revenue growth of 36.3% in the last twelve months and a gross profit margin of 33.8%. For deeper insights into Seagate’s growth potential and comprehensive financial analysis, check out the detailed Pro Research Report available on InvestingPro.
The firm’s long-term (LT) targets for Seagate are notably optimistic, with expectations of a revenue compound annual growth rate (CAGR) between 13-16%, gross margins (GM) over 40%, an operating expense (opex) ratio around 10%, and an earlier than anticipated $5 billion share buyback plan. Management’s target model for fiscal years 2025 to 2028 suggests an EPS of $19 by FY28, surpassing Morgan Stanley’s previous estimate of $14. This projection implies that the stock is currently trading at a P/E ratio of just 6-8 times. The company’s current P/E stands at 15.8x, with analysts maintaining a consensus recommendation of 2.04 (Buy). Based on InvestingPro’s Fair Value analysis, the stock appears to be fairly valued at current levels.
The new price target of $140 is based on 14 times Morgan Stanley’s near-term EPS estimate, indicating a potential upside of approximately 30%. The firm also presented a bullish scenario where Seagate could see over 75% upside to a $190 target, compared to a 30% downside in a bearish $74 case.
However, Morgan Stanley also noted potential risks that could impact Seagate’s performance. These include the possibility of the hard disk drive (HDD) cycle declining sooner than expected, tariffs introducing additional costs or dampening demand, and the long-term threat posed by enterprise solid-state drives (eSSD) disrupting the market. Despite these risks, Seagate has maintained dividend payments for 15 consecutive years, currently offering a 2.55% yield, demonstrating its commitment to shareholder returns even during market challenges.
In other recent news, Seagate Technology has made several announcements that are of interest to investors. The company revealed a $5 billion stock repurchase program, which highlights its commitment to returning value to shareholders and indicates confidence in its financial health. This buyback plan has no expiration date, allowing Seagate flexibility in its execution. Additionally, Seagate’s recent Analyst Day event shed light on its strategic roadmap and financial goals, including a revenue compound annual growth rate (CAGR) in the low-to-mid teens through fiscal year 2028.
Analysts have responded positively to these developments. Mizuho (NYSE:MFG) Securities raised its price target for Seagate to $130, maintaining an Outperform rating, while Citi increased its target to $140, reaffirming a Buy rating. Both firms noted the company’s advancements in Heat-Assisted Magnetic Recording (HAMR) technology and its potential to lead the industry. Seagate’s management also reported a successful qualification of HAMR technology at three out of eight global hyperscalers, with a roadmap extending through 2033.
Seagate’s CEO, Dave Mosley, emphasized the company’s enhanced supply discipline and demand visibility, expressing confidence in navigating the data-centric landscape. The company aims for a 40% non-GAAP gross margin and capital returns exceeding 75% of free cash flow. These strategic moves and the positive analyst outlook reflect Seagate’s positioning for growth and shareholder returns amidst rising data storage demands.
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