Yahoo Finance Seagate (STX) Up 8.7% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Seagate (STX). Shares have added about 8.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Seagate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Seagate's Q3 Earnings Beat Estimates
Seagate reported third-quarter fiscal 2024 non-GAAP earnings of 33 cents per share, beating the Zacks Consensus Estimate by 22.2%. The company reported non-GAAP loss of 28 cents per share in the year-ago quarter.
Management anticipated third-quarter fiscal 2024 non-GAAP earnings to be 25 cents (+/- 20 cents).
Non-GAAP revenues of $1.655 billion missed the Zacks Consensus Estimate by 0.7%. The figure declined 11% on a year-over-year basis. However, revenues improved 6% sequentially. Management projected revenues to be $1.65 billion (+/- $150 million).
Sequentially, the company witnessed mass capacity demand improvement owing to stronger nearline cloud demand, which offset seasonal declines in the VIA market. Nearline cloud revenues improved owing to higher sales to cloud customers across the United States and China coupled with steady enterprise demand.
Exabyte Shipments in Detail
In the reported quarter, Seagate shipped 99.1 exabytes of HDD storage, down 16% year over year. However, this marked an increase of 4% sequentially.
Average mass capacity increased 7% year over year and 6% sequentially to 8.7TB.
The company shipped 88.5 exabytes for the mass-capacity storage market (including nearline, video and image applications, and network-attached storage). This recorded a year-over-year plunge of 15% in exabytes shipments. However, exabyte shipments rose 6% sequentially. Average mass capacity per drive jumped sequentially to 12.5 TB from 11.9 TB.
In the nearline market, it shipped 71.7 exabytes of HDD, down 17% year over year but up 10% sequentially.
Seagate shipped 10.6 exabytes for the legacy market (which included mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 28% year over year and 11% sequentially. Average capacity improved by 11% year over year to 2.5 TB.
Revenues by Product Group
Total revenues of HDD (89% of revenues) declined 8% year over year to $1.477 billion in the reported quarter. On a sequential basis, revenues were up 7%.
The Systems, SSD & Other segment’s revenues (11%), including enterprise data solutions, cloud systems and solid-state drives, were $178 million, down 30% on a year-over-year basis but up 4% sequentially.
Our estimates for revenues from HDD and non-HDD segments were $1.443 billion and $183.1 million, respectively.
Margin Details
Non-GAAP gross margin improved to 26.1% from 18.7% in the prior-year quarter.
Non-GAAP operating expenses were down 12% on a year-over-year basis to $249 million.
Non-GAAP income from operations totaled $183 million, up from $65 million a year ago. Non-GAAP operating margin increased to 11.1% from 3.5% in the year-earlier quarter.
Balance Sheet and Cash Flow
As of Mar 29, cash and cash equivalents were $795 million compared with $787 million as of Dec 29, 2023.
As of Mar 29, long-term debt (including the current portion) was $5.671 billion compared with $5.669 billion as of Dec 29, 2023.
Cash flow from operations and free cash flow were $188 million and $128 million compared with $169 million and $99 million in the prior quarter, respectively.
It paid $147 million as dividends in the fiscal third quarter. It exited the quarter with 210 million shares outstanding.
Outlook
Management anticipates fourth-quarter fiscal 2024 revenues to be $1.85 billion (+/- $150 million). Incremental improvements in mass capacity market, especially nearline cloud products and nearline enterprise, and an uptick in demand in VIA markets are expected to drive top-line growth.
For VIA, management expects demand to trend higher throughout 2024 with smart cities being the biggest end-market opportunity. For legacy and non-HDD markets, Seagate forecasts performance to be at a similar level in the June quarter.
Non-GAAP earnings for the fiscal fourth quarter is projected to be 70 cents per share (+/- 20 cents).
Seagate envisions fiscal 2024 capex to be at or below the low end of its long-term target range of 4-6% of revenues.
Non-GAAP operating expenses are suggested to be $260 million. At the midpoint of the revenue guidance, management expects the non-GAAP operating margin to grow in low-teens percentage range of revenues (including underutilization expenses of $20 million).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 64.11% due to these changes.
VGM Scores
At this time, Seagate has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Seagate has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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