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Why Is Seagate (STX) Up 6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Seagate (STX - Free Report) . Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Seagate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Seagate Q4 Earnings & Revenues Beat Estimates

Seagate reported fourth-quarter fiscal 2021 non-GAAP earnings of $2.00 per share, which beat the Zacks Consensus Estimate by 7.5%. The bottom line increased 66.7% from the year-ago quarter’s figure and 35.1% sequentially. Management had anticipated non-GAAP earnings per share for fiscal fourth quarter to be $1.85 per share (+/- 15 cents).

Non-GAAP revenues of $3.031 billion outpaced the Zacks Consensus Estimate by 1.6%. The figure improved 19.7% on a year-over-year basis and 10.3% sequentially. Management had anticipated fiscal fourth-quarter revenues of 2.95 billion (+/- 150 million).

Robust adoption of its mass capacity storage solutions driven by healthy cloud data center demand as well as recovering enterprise and video and image application (VIA) market boosted top-line numbers. With return to workplace trend picking up pace, the company expects on-premises IT infrastructure investments to support the recovery witnessed in enterprise markets.

In fiscal 2021, on a year-over-year basis, Seagate reported non-GAAP earnings of $5.64, which increased 13.9%. Revenues of $10.681 billion inched up 1.6% year on year.

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 152.3 exabytes of hard disk drive (“HDD”) storage, with an average capacity of record 5.4 terabytes (TB) per drive. This marked year-over-year improvement of 30% and sequential growth of 9% in total HDD exabytes shipments.

Average mass capacity improved to 5.4 TB from 4.5 TB (up 21%) reported in the year-ago quarter and increased from 5.1 TB (up 7%) reported in the previous quarter.

The company shipped 123.3 exabytes for the mass capacity storage market (includes nearline and video and image applications as well as network-attached storage or NAS). This marked sequential growth of 11% and year-over-year improvement of 36% in exabytes shipments. Average mass capacity per drive fell sequentially to 9.4 TB from 9.6 TB.

In the nearline market, the company shipped 101.4 exabytes of HDD, up 28% year over year and 6% sequentially.

The company shipped 29.1 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices), which represents year-over-year increase of 10% in exabyte shipments. Average capacity increased 19% on a year-over-year basis to 1.9TB.

Revenues by Product Group

Total HDD revenues (91% of revenues) increased 18% year over year and 10% sequentially to $2.737 billion in the reported quarter.

Revenues from mass capacity storage soared 29% year over year. Mass capacity contributed 69% to total HDD revenues. Nearline drives benefited from higher demand from store-centric blockchain applications.

Non-HDD segment revenues (9%), which include enterprise data solutions, cloud systems and SSDs, was $276 million, up 16% sequentially and 42% year over year.

Margin Details

Non-GAAP gross margin expanded 240 basis points (bps) on a year-over-year basis to 29.6%.

Non-GAAP operating expenses were up 11% on a year-over-year basis to $346 million.

Non-GAAP income from operations were $546 million, up 46.4% from the year-ago quarter’s figure. Non-GAAP operating margin expanded 330 bps from the prior-year quarter’s reported figure to 18.1%.

Balance Sheet and Cash Flow

As of Jul 2, 2021, cash and cash equivalents were $1.209 billion compared with $1.212 billion as of Apr 2, 2021.

As of Jul 2, 2021, long-term debt (including current portion) was $5.139 billion compared with $5.142 billion as of Apr 2, 2021.

Cash flow from operations was $478 million compared with $378 million reported in the previous quarter.

Free cash flow for the reported quarter amounted to $354 million compared with $274 million in the previous quarter.

In fiscal fourth quarter, the company repurchased 2.6 million shares worth $228 million and paid out cash dividends worth $154 million. In fiscal 2021, the company repurchased 33.6 million shares worth $2 billion and paid out cash dividends worth $649 million.

Guidance

Management anticipates first-quarter fiscal 2022 revenues of 3.1 billion (+/- 150 million). Meanwhile, non-GAAP earnings per share for fiscal first quarter is expected to be $2.20 per share (+/- 15 cents).

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 15.99% due to these changes.

VGM Scores

Currently, Seagate has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Seagate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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