Morgan Stanley lifts Seagate stock target to $140 on growth outlook

Morgan Stanley upgraded Seagate Technology (STX) to a $140 price target from $99, maintaining an Overweight rating, citing the company's technological leadership, strong free cash flow, and potential to benefit from increased storage demand and data center expansion. The firm anticipates a revenue CAGR of 13-16% and EPS of $19 by FY28, implying a low P/E ratio, while Seagate's recent $5 billion stock repurchase program and advancements in HAMR technology have also garnered positive analyst attention, with Mizuho and Citi raising their price targets as well. Despite potential risks like HDD cycle decline and eSSD competition, Seagate's commitment to shareholder returns is underscored by its 15-year dividend payment history and 2.55% yield.

Analysis

Seagate Technology (STX) has received a significant endorsement from Morgan Stanley, which raised its price target to $140 from $99, maintaining an Overweight rating, reflecting strong positive sentiment also echoed by Mizuho and Citi with their respective target increases to $130 and $140. This optimism is fueled by an anticipated surge in storage demand from computing growth and data center expansion, with Seagate positioned to leverage its technological leadership in areas like Heat-Assisted Magnetic Recording (HAMR), now qualified at three major hyperscalers. The company's management projects a robust outlook through fiscal year 2028, targeting a 13-16% revenue compound annual growth rate (CAGR), gross margins exceeding 40%, and an earnings per share (EPS) of $19, which would imply the stock is currently trading at a forward P/E of 6-8 times FY28 earnings, contrasting with its current P/E of 15.8x. Morgan Stanley views STX as undervalued, trading at approximately 7.5 times peak EPS, and bases its $140 target on 14 times its near-term EPS estimate, suggesting around 30% upside from the current $112.74 price, while InvestingPro's Fair Value analysis indicates the stock is fairly valued. Seagate's financial health is rated "GOOD" by InvestingPro, supported by recent 36.3% last-twelve-months revenue growth, a 33.8% gross profit margin, and a commitment to capital returns, evidenced by a new $5 billion share buyback program and 15 consecutive years of dividend payments, currently yielding 2.55%. Despite potential risks such as an earlier-than-expected hard disk drive (HDD) cycle decline, tariffs, and long-term enterprise solid-state drive (eSSD) competition, the consensus among analysts is bullish, driven by Seagate's strong fundamentals and strategic initiatives.

Key Decisions for Investors

• Investors should note the strong analyst consensus and Seagate's ambitious long-term targets, which, if achieved, could support significant EPS growth and a potential re-rating of the stock's valuation multiple from its current levels.
• Consider the substantial capital return program, including the $5 billion buyback and consistent dividend yielding 2.55%, as supportive factors for shareholder value, while monitoring progress on HAMR technology adoption and gross margin expansion towards the targeted 40%.
• Remain cognizant of the identified risks, particularly the HDD cycle dynamics and eSSD encroachment, and weigh Morgan Stanley's bullish $140-$190 scenarios against the potential downside risk and InvestingPro's 'fairly valued' assessment at current levels.