It has been about a month since the last earnings report for Seagate (STX Quick QuoteSTX - Free Report) . Shares have added about 7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Seagate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Seagate Q3 Earnings Top Estimates, Revenues Up Y/Y

Seagate reported third-quarter fiscal 2020 non-GAAP earnings of $1.38 per share, which surged 48.4% from the year-ago quarter’s reported figure.

Non-GAAP revenues of $2.718 billion increased 17.5% from the year-ago quarter’s level.

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 120.2 exabytes of hard disk drive (HDD) storage, with an average capacity of record 4.1 terabytes (TB) per drive. This marked year-over-year and sequential improvement of 70% and 26% in the total HDD exabytes shipments, respectively. Notably, average capacity improved from 3.3 TB and 2.4 TB reported in the prior quarter and the year-ago quarter, respectively.

The company shipped 91.1 exabytes for the mass capacity storage market (includes nearline and video and image applications as well as network-attached storage or NAS). This marked a sequential increase of 28% in exabytes shipments. Average capacity per drive increased sequentially from 6.4 TB to 8.2 TB.

In the nearline market, the company shipped 76.4 exabytes of HDD, up 55.9% sequentially and with an average capacity of 10 terabytes. This was driven by strong demand from cloud and hyperscale customers.

Management anticipates robust demand for the company’s 16-terabyte capacity products to be a key catalyst in the days ahead, as production to higher volumes improves. Notably, the 16-terabyte nearline drive witnessed more than double revenue growth sequentially.

The company shipped 29.1 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices) with an average capacity of 1.6 TB. This marked a sequential decline of 18% in exabytes shipments. Notably, average capacity remained flat sequentially.

This was due to the initial outbreak in China and longer New Year impacting demand for consumer electronics.

Notably, mass capacity and legacy verticals contributed 57% and 36% to total revenues, respectively.

Revenues by Product Group

Total HDD revenues (92.9% of revenues) increased 1.8% year over year to $2.526 billion in the reported quarter.

Non-HDD segment revenues (7.1% of revenues), which includes enterprise data solutions, cloud systems and SSDs, declined 10.7% year over year to $192 million.

Margin Details

Non-GAAP gross margin expanded 120 basis points (bps) on a year-over-year basis to 28%. This includes an approximate 100 bps impact from higher logistic, underutilization and operational cost-related coronavirus disruption.

Non-GAAP operating expenses were up 4% on a year-over-year basis to $340 million.

Non-GAAP income from operations came in at $422 million, up 43.5% from the year-ago quarter’s figure. Non-GAAP operating margin expanded 280 bps from the year-ago quarter’s reported figure to 15.5%.
 
Balance Sheet and Cash Flow

As of Apr 3, 2020, cash and cash equivalents were $1.61 billion compared with $1.74 billion as of Jan 3, 2020.

Seagate ended fiscal third quarter with a long-term debt (including current portion) of $4.103 billion, compared with $4.141 billion in the last reported quarter.

Cash flow from operations was $390 million compared with $480 million reported in the previous quarter.

Free cash flow for the reported quarter amounted to $260 million compared with $286 million in the last reported quarter.

Guidance

Management anticipates fourth-quarter fiscal 2020 revenues to be 2.6 billion (+/- 7%).

Non-GAAP earnings per share for fiscal fourth quarter is expected to be $1.28 (+/- 10%).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, Seagate has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Seagate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.