Seagate (STX) Down 4.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Seagate (STX). Shares have lost about 4.8% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Seagate due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. Seagate's Q2 Earnings Beat EstimatesSeagate reported second-quarter fiscal 2025 non-GAAP earnings of $2.03 per share, beating the Zacks Consensus Estimate by 7.98%. Also, the figure was toward the high end of management’s guidance of $1.85 per share (+/- 20 cents). The figure surpassed $2 for the first time in 12 quarters, highlighting its continued focus on profitability. The company reported non-GAAP earnings of 12 cents per share in the year-ago quarter. The strong uptake of its high-capacity nearline drives, consistent price optimization and disciplined cost management drove the bottom line.Non-GAAP revenues of $2.325 billion beat the Zacks Consensus Estimate by 0.64%. The figure increased 49.5% year over year and 7.2% sequentially. For the fiscal second quarter, management projected revenues to be $2.3 billion (+/-$150 million). The upside resulted from strong momentum in the nearline cloud segment and significant improvements in the enterprise markets.Higher mass capacity revenues were driven by stronger nearline cloud demand. Mass capacity revenues surged 79% year over year to $1.894 billion. Its exabyte shipments now represent 93% of total HDD exabyte shipments.Nearline revenues almost doubled in the fiscal second quarter from the previous year. The figure grew 60% for 2024, driven by strong demand from both cloud service providers (CSPs) and Enterprise/OEM customers. Management noted that the uptick in demand for nearline products aligns with the roughly 50% growth in cloud capital investments by its customers in 2024, with their CapEx projected to continue rising throughout the calendar year 2025.Seagate’s technological roadmap continues to align with evolving market demands. The company has taken significant strides in its cutting-edge HAMR technology. During the December quarter, Seagate began ramping up HAMR-based Mozaic products for its lead cloud customer. The company has already reached a milestone by sampling products with capacities of up to 36 terabytes (TB).Exabyte Shipments in DetailIn the reported quarter, Seagate shipped 150.8 exabytes of HDD storage, up 59% year over year and 10% sequentially. Our estimate was pegged at 143.8 exabytes of HDD storage. Average capacity per drive increased 41% year over year and 9% sequentially to 11.6 TB.The company shipped 140 exabytes for the mass-capacity storage market (including nearline, video and image applications, and network-attached storage). This recorded a year-over-year increase of 68% in exabyte shipments and 9% sequentially. Our estimate was pegged at 134.1 exabytes of mass-capacity storage. Average mass capacity per drive increased sequentially to 15 TB from 14.3 TB.Seagate shipped 10.8 exabytes for the legacy market (which includes mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 10% year over year but up 13% sequentially. Average capacity increased 15% year over year to 3 TB.Revenues by Product GroupTotal HDD revenues (93.3% of total revenues) rose 57% year over year to $2.169 billion in the reported quarter. On a sequential basis, revenues were up 8%.Systems, SSD & Other segment’s revenues (6.7%), including enterprise data solutions, cloud systems and solid-state drives, were $156 million, down 9% on a year-over-year basis and 5% sequentially.Seagate's Margin DetailsNon-GAAP gross margin increased to 35.5% from 23.6% in the prior-year quarter. This expansion was driven by price adjustment, cost discipline and a favorable product mix shift to mass-capacity products. Non-GAAP operating expenses were up 19.6% on a year-over-year basis to $287 million, primarily due to higher variable compensation.Non-GAAP income from operations totaled $538 million, up from $127 million a year ago. Non-GAAP operating margin increased to 23.1% from 8.2% in the year-earlier quarter.Balance Sheet and Cash FlowAs of Dec. 27, 2024, cash and cash equivalents were $1.238 million compared with $1.239 million as of Sept. 27, 2024.As of Dec. 27, 2024, long-term debt (including the current portion) was $5.679 billion compared with $5.676 billion as of Sept. 27, 2024.Cash flow from operations was $221 million compared with $169 million in the previous quarter. Free cash flow amounted to $150 million compared with $99 million in the previous quarter. Management anticipates sequential improvement in free cash flow generation throughout the remainder of the fiscal year.Seagate's GuidanceManagement anticipates third-quarter fiscal 2025 revenues of $2.1 billion (+/- $150 million). It anticipates strong cloud demand to partly offset seasonal declines in VIA and legacy markets, alongside supply constraints. It expects to meet build-to-order commitments, but its capacity to handle in-quarter volume increases will be limited, with an estimated $200 million revenue impact from supply woes included in its guidance. Amid supply constraints in the fiscal third quarter, sustained demand for its latest nearline products, including Mozaic, presents an opportunity for sequential growth in gross margin performance.Non-GAAP earnings are expected to be $1.7 per share (+/- 20 cents).For the quarter, non-GAAP operating expenses are expected to be $290 million. At the midpoint of the revenue guidance, management expects the non-GAAP operating margin to grow in the low-20s percentage range of revenues. It continues to expect fiscal 2025 capex to be at or below the low end of its long-term target range of 4-6% of revenues.How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in estimates revision.The consensus estimate has shifted -17.11% due to these changes.VGM ScoresCurrently, Seagate has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Seagate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Seagate Technology Holdings PLC (STX): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks