Seagate Earnings: Slow Recovery for HDDs Is Underway, and We Maintain Our $55 Fair Value Estimate

We maintain our $55 fair value estimate for shares of no-moat Seagate Technology after the firm reported expectedly weak fiscal 2024 first-quarter results against a soft market backdrop. The hard disk drive market has been soft for seven quarters now, with large cloud customers delaying orders to work down existing inventories. For these largest cloud customers, we believe the market is past its bottom. We see a gradual sequential recovery through fiscal 2024 but still expect sales to decline for the year. We anticipate a greater rebound in fiscal 2025. In our view, consensus estimates for sales in fiscal 2024 and 2025 assume a sharper snapback to demand than we think is reasonable, and look high. We see the shares as overvalued.