Seagate is the last pure-play disk-drive company.
Brent Lewin/Bloomberg
Investors have figured out there’s money to be made in storing data, driving up shares of both memory-chip and disk-drive companies. There really are only three obvious ways to play the trend. Micron Technology (Ticker: MU) makes the two primary kinds of memory chips — DRAM, which is used for short-term storage in phones, cars, computers and other devices, and Flash. Western Digital (WDC) makes both disk-drives and flash devices. And then there’s Seagate (STX), the last pure-play disk-drive company. For the year to date, Western shares are up 24%, Micron 23% and Seagate 16%.On Wednesday, Cowen analyst Karl Ackerman upped his rating on Seagate shares to Outperform from Market Perform, with a new target price of $95, up from $66. “We are increasingly convinced that Seagate is transitioning from a period of secular decline toward a multi-year period of growth,” Ackerman writes in a research note. The analyst expects moderating declines in parts of the business that have been cannibalized by flash-memory based devices. And he sees growth ahead in enterprise storage, driven by the company’s HAMR (heat-assisted magnetic recording) technology.Ackerman notes that mass capacity, enterprise-grade drives account for 62% of revenues, twice the level of five years ago, as public cloud “hyperscalers” store more data on Seagate and Western Digital drives. He sees Seagate transitioning toward a high margin and secular growth story, driven by a doubling of data creation every three years. The analyst thinks Seagate can grow in the mid-single-digit range through calendar 2025, with earnings potentially reaching $9 a share. The Street consensus forecast for the June 2021 fiscal year is $4.95 a share.Ackerman also sees value in Seagate’s recent launch of a software-as-a-service via a cloud-based storage service calls Lyve, which he says should allow the company “to add value as distributed, edge-based computing accelerates over time.” He thinks Lyve “creates upside opportunity.”Seagate is up 1.4%, to $76.55.
Write to Eric J. Savitz at [email protected]
