Seagate Technology ( STX ) expects its revenues to trend down, as management foresees weakening demand at the customer level. The slowdown is likely to be more of a near-term issue, with the longer-term fundamentals of the storage market remaining strong.
We currently have a price estimate of $62 per share for Seagate, which is around 40% higher than the current market price. Our interactive dashboard on Seagate's Price Estimate Post-Q1 outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.
The first quarter of fiscal 2019 saw a strong set of numbers, with a consensus-beating 14% y-o-y revenue growth. While shipments were broadly ahead of consensus, the company's management stated that customer "digestion" issues could impact volume growth in the near to medium term. What was encouraging to note was management's confidence around demand management and its ability to manage margins by pushing back investments.
Seagate also noted that this slowdown is more of an industry-wide phenomenon and nothing to be particularly worried about. In fact, each of the last two cycles have seen higher highs, and the high in the subsequent cycle is also likely to be higher than the previous cycle. What gives credibility to management's claim is the additional repurchase authorization of $2.3 billion, taking the total share repurchase authority at the end of Q1 to $3 billion.
On an overall basis, due to the underlying transition to cloud and broader trends of increasing demand for storage, the current cyclical trough may not last very long. We expect Seagate to tide over this cycle fairly well, and be well-positioned for the start of the next cycle.
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