Seagate Advances 8% In October On Better-Than-Expected Q1 Results

If you recall the days before cloud storage was ubiquitous, the name Seagate Technology Holdings NASDAQ: STX may ring a bell.

Even though you may not have an external hard drive connected to your laptop anymore, demand for cloud storage is driving growth at Seagate.

The Ireland-based maker of hard disk drives has been consolidating below its May 17 high of $106.22. 

So far, the stock is up 8.68% in October, thanks to rebounding in the weeks ended October 15 and 22.

Shares climbed 1.29% in the past month, as the stock appears it may be shaping the right side of the current base. 

The stock advanced 6.39% last week in volume 30% higher than normal. On October 22, the company reported fiscal first-quarter results that topped Wall Street views.

Seagate earned $2.35 per share, ahead of expectations for your $2.21 per share. That was a 153% year-over-year increase.

Revenue was $3.115 billion, up 35%. Analysts had expected $3.10 billion, according to MarketBeat data.

Other highlights from the quarter include:

• GAAP operating margin of 18.8%; non-GAAP operating margin of 20.1%
• GAAP diluted earnings per share (EPS) of $2.28; non-GAAP diluted EPS of $2.35
• Raised the quarterly cash dividend for third consecutive year to $0.70 per share
• Cash flow from operations of $496 million and free cash flow of $379 million

In a statement, CEO David Mosley addressed strength from the cloud storage and video and imaging markets.

He said ongoing demand from cloud data center customers, and strength in the video and image applications markets contributed to the strong revenue.

“Long-term, secular demand for mass capacity storage underpins our multi-year financial growth targets," he added. "Seagate’s innovative technology roadmap and operational agility position the company well to capture these growing opportunities and continue generating robust free cash flow to deliver value for customers and shareholders.”

In the earnings conference call, he elaborated on the strength of the "mass capacity" market, which includes enterprise customers.

"High capacity HDDs play a crucial role in helping businesses economically manage and extract value from an ever-increasing growth in data across the more distributed enterprise. Without question, the HDD industry is being driven by long-term secular demand for mass capacity storage, a market that we expect to more than double by calendar 2026 to $26 billion, and Seagate is well equipped to answer the call," Mosley said.

For the full year of fiscal 2022, Wall Street pegs Seagate's earnings at $8.88 per share, up 57%. For fiscal 2023, that's seen growing another 5% to $9.32 per share.

Of course, for any electronics company, the well-documented chip shortage may play a role in near- to medium-term growth. Other supply-chain bottlenecks, including shipping, are also impacting all manner of businesses.

"We are seeing a confluence of factors creating inflationary pressures and acute supply chain disruption," Mosley said." These include semiconductor component shortages and freight logistics challenges that are creating cost pressures and impacting critical end-product assemblies for certain customers. Notwithstanding these obstacles, underlying demand remained solid for Seagate's products, particularly in the mass capacity market, which is why we maintain a high level of confidence in our fiscal year growth outlook."

The company issued second-quarter guidance, based on current assumptions and expectations.

• Revenue of $3.1 billion, plus or minus $150 million
• Non-GAAP diluted EPS of $2.35, plus or minus $0.15

On Tuesday, Seagate announced a collaboration with LucasFilm on a line of Star Wars-themed Beskar Ingot Drives. According to Seagate, this product is "the first release in a collaboration to bring designs inspired by the Star Wars franchise to its line of PC gaming storage devices, taking gamers’ battle stations to the next level."

Despite the somewhat lengthy consolidation, Seagate still boasts a year-to-date gain of 44.85%, mostly due to gains for five months in a row, from January through May. 

At this juncture, it's too early to call a new rally in the stock, as it has a long way to go before regaining previous price highs.

However, if the upside trade continues near its current trajectory, it's possible that a long-term trend line may reveal an early buy point at around $95.