Seagate Technology (STX) shares fell about 6% in after-hours trading on Tuesday, October 27, after the company reported the most profitable quarter in its history. Fiscal Q1 2027 revenue rose 61% to $4.23 billion, non-GAAP EPS came in at $7.68, and free cash flow hit a record $1.5 billion.
The outlook was even stronger. Seagate guided to $4.8 billion in revenue and $9.20 in non-GAAP EPS for the December quarter at the midpoints. Analysts had expected $4.53 billion and $8.58, according to Benzinga Pro data. The stock closed at $667.85 before the report, roughly 30% below where it traded a month earlier.
This Was Seagate’s Best Quarter Yet
- Non-GAAP gross margin hit 57.8%, up from 40.1% a year earlier.
- Non-GAAP operating margin reached 50.7%, up from 29.0%.
- Seagate retired $1.2 billion of debt during the quarter, reducing gross debt to $2.4 billion, and repaid another $750 million after quarter-end, bringing principal debt to about $1.6 billion. It also raised its quarterly dividend about 3% to $0.76.
- On the earnings call, management said it expects to significantly increase buybacks starting in calendar 2027. It has $4.4 billion left on its authorization.
The margin is the number to focus on. Seagate’s quarterly gross margin was 11.14% in the September 2023 quarter and 52.30% in the July 2026 quarter. This quarter’s 57.3% GAAP figure is more than five times the 2023 level.
Seagate Stock Is Getting Cheaper as Earnings Climb
Before the report, Seagate traded at 18.22x NTM earnings. That’s below its five-year mean of 26.17x and less than half the 40x-plus it reached in June. (The mean is inflated by 2023, when trough earnings pushed the multiple past 127x.)
Earnings estimates are heading the other way. Analysts expect normalized EPS of $36.66 for fiscal 2027 and $57.44 for fiscal 2028. The new Q2 guide alone works out to $36.80 annualized, already above the full-year estimate. At about $630 after hours, the stock trades at roughly 17x this year’s EPS estimate and 11x next year’s.
The price is falling while earnings are rising.
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Why Investors Won’t Pay Up
The fear is supply. On October 2, Toshiba said it had shipped the first drives from an expanded nearline production line in the Philippines and aims to nearly double its annual production capacity, on a storage capacity basis, by its fiscal 2027. Seagate and Western Digital (WDC) fell sharply on the news. Toshiba is the only other major hard drive maker, and tight supply is what has let Seagate raise prices. Higher pricing has helped expand margins, alongside an improving product mix and manufacturing efficiencies as Seagate shifts to higher-capacity HAMR drives.
The Street’s estimates show little of that risk. They have revenue growing 35% in fiscal 2028 and 23% in fiscal 2029, when new Toshiba capacity is more likely to be in the market. The selloff is a bet that those numbers come down.
Seagate’s defense is visibility. On Tuesday’s call, management said most nearline supply was allocated through calendar 2028, and its build-to-order contracts set configuration and pricing terms through calendar 2027. That offers near-term protection, but Toshiba’s expansion is already underway. The competitive risk depends on how quickly its capacity ramps and how future contracts are priced.
Two Ways to Read Seagate’s Selloff
The bull case starts with the multiple. Seagate trades at 11x fiscal 2028 estimates. Analysts could cut that year’s EPS by 30% and the stock would still trade under 16x at $630, below its multiple before Tuesday’s report.
The bear case starts with the margin. A 57% gross margin is more than five times where it stood three years ago. TIKR’s data shows the multiple has been as low as 7.67x in the past five years, and hard drive pricing has broken before when supply caught up.
Pricing is set through calendar 2027, so Tuesday’s quarter says little about where the stock goes from here. Fiscal 2028 decides it, and Seagate expects to start finalizing calendar 2028 terms over the next few quarters. If that year’s EPS holds anywhere near $57, $630 is cheap. If Toshiba’s supply drags it toward $40, the stock already reflects that at about 16x.
So What Is Seagate Stock Actually Worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
