Morgan Stanley Raises Seagate's Price Target On Cloud Growth

Meetings with Seagate Technology’s STX top management increased the confidence in sustainable multiple expansion, given the company’s mix shift toward higher growth mass capacity HDDs (hard disk drives) and brighter prospects for cloud capital expenditure, according to Morgan Stanley.

The Analyst

Morgan Stanley’s Katy Huberty maintained an Overweight rating on Seagate Technology, while raising the price target from $61 to $66.

The Thesis

The roadmap of Seagate Technology’s HAMR (heat-assisted magnetic recording) HDDs (hard disk drives) could disrupt industry market share, while enabling the company to regain pricing power and resulting in margin expansion, Huberty said in the note.

She added that this could begin unfolding as the 24 terabyte HDD ramps in 2022.

“Seagate believes its product roadmap diverges from competitors at 24TB as competitor roadmaps based on MAMR technology peak out at 22TB,” the analyst wrote.

She further mentioned that a mix shift to higher margin mass capacity HDDs could boost the company’s gross margin to the low 30% range by 2022, while pricing power may provide additional tailwind.

Referring to the company’s near-term prospects, Huberty said that robust cloud demand and share gains by the 16 terabyte HDD could boost revenue growth in the first half of 2020.

Price Action

Shares of Seagate Technology has risen slightly to $59.51 at the time of publishing on Wednesday.

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