Seagate Technology stock edged higher Tuesday following its fiscal second quarter earning reports, tacking onto gains from the regular session. Seagate's December quarter sales and earnings exceeded expectations, though its March quarter sales forecast came in slightly lighter than projected.
Seagate, the world's largest manufacturer of hard-disk drives, said that it earned an adjusted $2.03 per share on sales of $2.33 billion for the December-ended quarter. Analysts polled by FactSet projected the -based company would post adjusted earnings of $1.88 per share on sales of $2.32 billion.
For the same period a year earlier, Seagate posted adjusted earnings of 12 cents per share on sales of $1.56 billion.
For the current quarter, Seagate guided for sales of $2.10 billion and adjusted EPS of $1.70 at the midpoint of its given ranges. Prior to the company posting its results, analysts were projecting Seagate would earn $1.70 per share on sales of $2.19 billion for the March quarter, according to FactSet.
"Seagate ended calendar 2024 on a strong note as we grew revenue, gross margin and non-GAAP EPS successively in each quarter of the year," Seagate Chief Executive Dave Mosley said in a news release. "Our results demonstrate structural improvements in the business and our focus on value capture in an improving demand environment, highlighted by decade-high gross margin performance exiting the December quarter."
On the stock market today, Seagate stock rose more than 1% to 103 in after hours trading. Shares slipped by as much as 4% immediately following the report before bouncing back.
Seagate Named Top Pick At Morgan Stanley
Meanwhile, Seagate stock gained 3.7% in regular trading Tuesday. That was after Morgan Stanley analysts named Seagate their "top pick" among IT hardware stocks by analysts at Morgan Stanley, replacing Apple.
In a client note published before Seagate's earnings results, Morgan Stanley analyst Erik Woodring said he is taking a "contrarian view" in elevating Seagate to top pick. Shares of Seagate 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.
"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."
That upside was enough to push Apple aside as the analyst'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 Stock In Consolidation Pattern
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 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.
