Seagate Has To Prove Itself Over 6-9 Months Says BTIG; Reiterates Buy

Seagate Technology PLC STX has announced the preliminary results for 4Q16 above the high end of guidance, driven by increased HDD demand and significantly higher ASP.

BTIG’s Edward Parker reiterated a Buy rating on the company, with a price target of $30.

Results Preview

Seagate Technology expects the revenue for 4Q16 to come in at $2.65 billion, ahead of the guidance and the consensus.

“The beat was driven by stronger than expected demand and richer enterprise mix,” Parker mentioned.

Gross margin is expected at 25.8 percent, above the guidance of 23 percent, driven by higher enterprise mix and initial benefits from the restructuring initiatives.

Parker believes that “the price elasticity of hard drives should diverge between client devices and high capacity cloud storage over time.”

Related Link: Weak Outlook For PC And Hard Drive Industries Seen At BMO

Restructuring And Gross Margin Targets

Seagate Technology has raised its workforce consolidation target from the earlier 3 percent to 14 percent of its global employees by the end of FY17, while setting a gross margin target of 30 percent by F2Q17.

Parker believes the restructuring efforts should help the company meet its gross margin target.

“We are encouraged by the company’s initial restructuring progress and believe management has taken the right steps to manage costs in the current environment,” the analyst added.

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