Analyst Note| William Kerwin |
No-moat Seagate Technology raised its fiscal fourth-quarter guidance on June 8 for the top and bottom lines, citing strong demand for its mass capacity drives. We are maintaining our $70 fair value estimate for the data storage leader, as slightly increased near-term expectations don’t alter our long-term view that the firm’s results will rise and fall with the cyclical hard disk drive market. We have modestly raised our expectations for nearline drive pricing and gross margins in the fourth quarter in light of the announcement, because we think stronger-than-expected demand will keep supply tight and pricing declines at bay. Nevertheless, we think the firm’s current valuation ignores the risk of a cyclical downturn in the next five years, and we view the shares as overvalued for long-term investors.