Expanding High-Capacity Drive Portfolio Will Meet Rising Demand For Mass Data Storage

Key Takeaways

• Seagate aims to boost margins and drive growth through expanding its high-capacity drive portfolio and leveraging Mozaic-based HAMR products.
  
• Rising demand for mass capacity HDDs, fueled by data-heavy applications and cloud-like storage trends, creates substantial sales opportunities for Seagate.
  
• Economic uncertainties, tech delays, market share decline, and cloud demand variability may strain Seagate's growth, margins, and competitiveness.

Catalysts

Engages in the provision of data storage technology and infrastructure solutions in Singapore, the United States, the Netherlands, and internationally.

• Seagate plans to ramp up its portfolio of high-capacity nearline drives, including Mozaic-based HAMR products, which is expected to expand margins and drive revenue growth. (Revenue, Gross Margin)
  
• The increasing demand for mass capacity HDDs due to growth in data-heavy applications like video content on e-commerce and social media, and generative AI applications, is anticipated to fuel sales in the cloud and enterprise markets. (Revenue)
  
• The shift towards cloud-like storage solutions, due to trends in video analytics and smart city projects, provides Seagate an opportunity to boost sales of high-capacity drives. (Revenue)
  
• Seagate's build-to-order model provides better demand visibility, enabling efficient capacity management and positioning the company for significant revenue growth in fiscal 2025. (Earnings)
  
• Customer feedback on Seagate's new HAMR technology indicates strong potential for future demand, positioning the company to maintain cost leadership and improve its margin profile as production volumes increase. (Gross Margin, Net Margins)

Seagate Technology Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Seagate Technology Holdings's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.3% today to 12.8% in 3 years time.
• Analysts expect earnings to reach $1.3 billion (and earnings per share of $6.36) by about December 2027, up from $824.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.5 billion in earnings, and the most bearish expecting $1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2027 earnings, down from 24.3x today. This future PE is lower than the current PE for the US Tech industry at 26.8x.
• Analysts expect the number of shares outstanding to decline by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

Seagate Technology Holdings Future Earnings Per Share Growth

Risks

• Continuing economic uncertainties, particularly in China, could negatively impact Seagate's VIA business, affecting revenue stability and growth.
  
• The possibility of delays in HAMR technology qualifications and ramping might impact Seagate's competitiveness and margins if they cannot fulfill demand efficiently.
  
• Market share concerns in the HDD space, due to reduced share in recent quarters, might lead to pricing pressures or lost revenue opportunities as competition might capture more market share.
  
• Potential variability in cloud demand due to macroeconomic conditions could impact Seagate's forecasted revenue growth and operational efficiency.
  
• The ongoing need for substantial capital expenditure to support technological transitions could impact net margins if top-line growth does not sufficiently offset these costs.

Valuation

• The analysts have a consensus price target of $117.84 for Seagate Technology Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $150.0, and the most bearish reporting a price target of just $65.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $10.3 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 8.0%.
• Given the current share price of $94.49, the analyst's price target of $117.84 is 19.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.