Is this the Right Time to Buy Seagate (STX) Stock?
Seagate Technology (STX), the second-largest U.S. manufacturer of HDDs, is witnessing positive estimate revisions following the announcement of a strategic update on Sep 12.
Over the past 30 days, 5 out of the 11 estimates were raised for the current quarter. As a result, estimated earnings per share of Seagate jumped from $1.22 to $1.25 during the same period.
These estimate revisions stem from Seagate’s expectation of better-than-estimated revenues in fiscal 2015 and 2017. The company expects fiscal 2015 revenues to grow in the range of 3% to 5%, while for fiscal 2017, revenues are projected to increase in the 6% to 8% range. Notably, Seagate’s fiscal 2014 revenues were down 4.4% year over year.
These favorable revenue forecasts can be attributed to some of the projections by IT research firms IDC and Gartner. According to Gartner, worldwide HDD shipments are expected to grow at a 2.9% compound annual growth rate from 2013 (552 units) to 2018 (635.1 units). Furthermore, IDC forecasts that by 2020 13 ZB data will be needed to be stored out of the 44 ZB data created. Storing this enormous amount of data presents traditional storage companies such as Seagate and its prime competitor Western Digital (WDC) a significant opportunity to grow their revenue.
Also, for the near term, buoyed by the strength in notebooks, enterprise and gaming, Seagate raised its current-quarter revenue projections by $100 million from its earlier forecast of $3.55 billion. Furthermore, Seagate expects its total addressable market for the upcoming quarter to be in the range of 142.0 to 146.0 million, buoyed by product refreshes and growth in the notebook and cloud market.
Seagate expects cloud-based solutions to drive revenue growth in the near term. The company’s expectations from the cloud stem from the fact that IDC expects 60% of the 13 ZB data produced will be stored in the cloud. As a matter of fact, Seagate forecasts its Cloud Systems and Solutions segment to generate $650–$700 million in revenues in FY15 and in excess of $1 billion by FY16.
Last but not the least, the demand for Seagate’s solid-state hybrid hard drives (:SSHD) is on the rise and it recently announced that shipments had reached 10 million units. SSHD blends the SSD speeds and HDD-class capacity in a more effective manner. An added advantage of SSHDs is that they are cheaper than SSDs. For these reasons, SSHDs are in high demand among PC manufactures. Seagate expects its hybrid drive shipments to reach 3 million in the September quarter, up from the previous forecast of 2.5 million.
Nonetheless, competition from SanDisk (SNDK), Hitachi and Samsung, weak PC segment sales and declining average selling prices remain concerns.
Currently, Seagate has a Zacks Rank #3 (Hold). Investors can also take a look at Stratasys (SSYS), another company in the technology sector, which sports a Zacks Rank #1 (Strong Buy).
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