Seagate Is 'Ahead Of Schedule'; Brean Raises Target To $50

A day after Seagate Technology PLC STX boosted its revenue and gross margin outlook for the September quarter, Brean Capital has lifted its target price on the stock from $42 to $50 with a Buy rating. This implied a more than 40 percent upside potential.

Analysts Ananda Baruah and Shenlun Wang believe Seagate is ahead of schedule in delivering normalized EPS of $5.00. They also think investors have not appreciated the company's current gross margin model as reflected by the stock price.

The brokerage expects the company to continue take COGS actions until the next June quarter. The firm expects Seagate to target internal use of heads and media from the current 80–85 percent to 90 percent as the biggest opportunity is media.

Brean Capital expects the storage disc maker to gain in gross margin reaching 30–32 percent in the calendar year 2018 with the help of its cost-align model. This was based on the expectations of capacity Max 70 EB /Q exiting in the fourth quarter of fiscal year 2017. This meant that Cap U would grow from 60–70 percent in the March quarter to 90–95 percent within the following three or four quarters.

Analysts' Take

In a research note, the analysts stated, "Preliminary Sep Q OpEx was $470 million, 6 percent lower Y/Y but was 6 percent higher Q/Q. We believe STX Sep Q OpEx included ~$40 million in variable comps associated with higher revenue and better-aligned business model. Going forward, we believe STX OpEx run-rate should be flat Y/Y for the rest of FY17 ending June but should decline entering H2 '17."

Seagate traded at $35.53, up $0.43, or 1.23 percent, in the pre-market trading at last check.

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