Market Overview

Seagate Earnings Move May Be Compounded By Short Squeeze

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A big Q4 earnings beat has shares of Seagate Technology PLC (NASDAQ: STX) trading higher by 18.9 percent on Wednesday. The company certainly surprised to the upside on Q4 performance and forward guidance, but a large part of the huge move may be driven by a short squeeze.

The market likes Seagate’s 2.3 percent sequential gross margin improvement and above-consensus Q1 revenue guidance. In addition, Q4 notebook HDD shipments were stronger than expected and mission-critical enterprise drive shipments were solid.

“STX has outperformed expectations for three consecutive quarters and upside potential here could be from 10TB ramp, pricing, opex or ability to keep utilization high, but we believe visibility is low,” Wells Fargo analyst Maynard Um said of Seagate’s Q4 numbers.

Despite the company’s recent positive momentum, Seagate stock clearly still has plenty of skeptics. In the past year, Seagate’s short interest has climbed 13.9 percent.

According to shortsqueeze.com, the stock currently has an elevated short percent of float of 12.1 percent. There are now more than 35.3 million shares held short with 10.1 days to cover.

After three straight strong quarters, some Seagate short sellers could be throwing in the towel on Wednesday. The resulting short squeeze may be a contributing factor in the stock’s huge move higher.

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