The adoption of HAMR technology by Seagate is seen as a positive move to keep HDDs competitive against SSDs. The recent upgrade by Morgan Stanley and the expected revenue growth indicate a bullish sentiment towards Seagate's stock.
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Analyst Erik Woodring predicts 'structurally stronger gross margins' for Seagate, potentially boosting earnings power 25-30% higher than expected. Seagate's long-term gross margin could surpass management's target, earning $7.50 per share or more in fiscal 2026, rising to $10.50 or more in fiscal 2027.
The declining ROCE and decreasing capital employed at Seagate Technology Holdings could indicate a mature and potentially shrinking business. Despite the stock's recent performance, the underlying fundamentals do not inspire confidence, suggesting caution is advised when considering this stock.
Semiconductor stocks held their ground in Q3, with share prices up 17.3%. Seagate Technology and Power Integrations had weak quarters, while Nvidia and Applied Materials impressed with strong results. Micron Technology showed significant improvement in inventory levels.
Despite Seagate Technology's enticing dividend yield, risks persist due to inadequate cash flow coverage and continued earnings decline over the past five years. This suggests potential sub-optimal outcomes for dividend investors.
Seagate Technology Holdings' ROCE and capital employed reduction may suggest a structurally declining business. Such trends are often unfavorable for long-term performance. Exploring other investment opportunities might be advisable unless these trends reverse.
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