TLDR
- Seagate (STX) fell 4% to $643.59 in premarket trading Wednesday despite record quarterly earnings.
- Adjusted EPS was $7.68 on revenue of $4.23 billion, both above Wall Street estimates.
- Second-quarter guidance of $9.20 EPS on $4.8 billion revenue also beat forecasts.
- Capital spending of $211 million topped the $202 million analysts expected.
- Baird raised its price target to $1,350 from $1,080 and kept an Outperform rating.
Seagate (STX) stock fell 4% to $643.59 in premarket trading Wednesday. The drop followed a record quarter.
Seagate Technology Holdings plc, STX
The stock had gained 4% in regular trading Tuesday. It still sits 42% below its June 22 closing high.
Seagate earned adjusted $7.68 a share for the quarter ended Oct. 2. That compares with $2.61 a year ago and a $7.45 forecast, per FactSet.
Revenue rose 61% to $4.23 billion. Analysts had expected $4.15 billion.
Guidance also beat. Seagate expects second-quarter adjusted earnings of $9.20 a share, plus or minus 20 cents.
Revenue is guided to $4.8 billion at the midpoint. Analysts had penciled in $4.5 billion and EPS of $8.66.
Why Investors Held Back
So why the sell-off? After a huge run this year, a beat has become the baseline, not a buy signal.
Seagate has ridden the AI wave, since AI creates massive amounts of data that need storage. But storage is cyclical, and the Street reacts fast to any hint of cooling demand or rising supply.
Spending drew a look too. Capital investment was $211 million, above the $202 million analysts forecast. It stays inside the company’s target range of 4% to 6% of revenue.
Rival Western Digital (WDC) fell last week on similar spending questions, even after beating estimates. Seagate may be seeing the same reaction.
CFO Gianluca Romano said some external component costs are much higher than a year ago. That offsets part of the company’s internal cost cuts.
Romano put it this way on the call. “We have to see where the external component cost will go in the future, but what we can control is actually performing very well.”
Baird Sees More Upside
Baird raised its price target to $1,350 from $1,080 and kept an Outperform rating. The stock is up 201% over the past year and 143% year to date, per Investing.com.
Baird said the drop came from one quarter of slower exabyte growth during a product transition. It expects growth to pick up again this quarter.
The firm projects total exabyte growth above 25% for fiscal 2027. It sees nearline exabyte capacity rising 30%.
December quarter guidance includes a fourth straight quarter of year-over-year gross margin gains above its competitor, Baird noted. It also said supply and demand gaps keep widening.
InvestingPro analysis says the stock looks overvalued against its Fair Value estimate. Market value was $151.86 billion when the Baird note ran.
Seagate was trading near $644 premarket Wednesday, down about 4% from Tuesday’s close.
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