Evercore ISI analysts started research coverage of Seagate Technology Holdings (STX) on Tuesday, giving it an Outperform rating and a 12-month target price of $110, implying roughly 25% upside from current levels.
STX shares rose 3% in premarket trading.
The broker said it believes both STX and the broader hard disk drive (HDD) sector are well-positioned to benefit from a mix of factors.
These include “1) Cyclical recovery with Hyperscalers & beyond, 2) margin expansion as Heat Assisted Magnetic Recording (HAMR) technology scales up, 3) more disciplined HDD marketplace, and 4) capital allocation that will skew to buybacks going forward,” analysts wrote.
“We estimate STX can get to $10-12 EPS power (FY27?) and in that framework STX will have sizable upside from current levels,” they added.
Evercore expects Seagate to achieve an EPS of over $5.00 in the fiscal year 2025, surpassing the consensus estimate of $4.70. This projection is based on the broker’s conviction that the market is not fully recognizing the potential for increased margins in the future.
Moreover, the analysts also see the higher leverage of Western Digital’s (WDC) operations as a positive for the industry, likely contributing to greater discipline across the sector.
Despite the cyclical nature of the HDD industry and STX, analysts believe “the upcoming upcycle could be more favorable vs. street expectations that could result in a stronger GM/EPS recovery through CY24.”