Seagate’s Earnings Miss Casts Short-Term Demand Doubt; We Lower Our FVE to $75

We lower our fair value estimate for no-moat Seagate Technology to $75 per share, from $80, after it reported disappointing fiscal fourth-quarter results and weak guidance for the fiscal first quarter. Seagate missed its guidance on the top and bottom lines by a meaningful margin and cited a weaker demand environment, particularly for its legacy products. Though the concoction of inflation, COVID-19-related shutdowns, and supply constraints had been affecting Seagate’s supply throughout the fiscal year, this was the first quarter in which it’s hampered demand. We maintain our faith in the long-term demand prospects for mass capacity drives, but think current weakness for legacy drives will slip into an accelerating decline over the next five years. Shares sold off as much as 12% after hours following the release, and we view Seagate as fairly valued.