Seagate Technology (STX) Gains Big on Morgan Stanley Update

Seagate Technology PLC (STX) (NASDAQ: STX)

Seagate Technology is having an incredible day in the market today, and for good reason. The company was the subject of a recent research note sent out by Morgan Stanley. Today, we’ll talk about the details of the update, how the market reacted to the news, and what we can expect to see from STX moving forward. So, let’s get right to it…

Morgan Stanley Upgrades STX

As mentioned above, Seagate Technology is having an incredible day in the market today after Morgan Stanley released a positive research note. In the note that it sent out to investors, the investment bank upgraded the stock and increased its price target. First and foremost, the stock has been upgraded from an “Underweight” rating to an “Equal Weight” rating. Also, the price target on the stock has been increased from $20 per share to $27 per share.

The analyst covering the note, Katy Huberty believes that STX has the ability to improve its gross margin situation, ultimately leading to stronger profits. She noted that with healthy inventory as well as newly announced manufacturing cuts, the company should be in a good position to greatly increase their margins. In the note, one of the most important statements was the following…

We think mix was rather favorable and enabled material gross-margin upside of ~300bps to 25.8% in June-qtr; this reflects uptick in 8TB share coupled with better execution across the board and limited presence in the low-end notebook market. In addition, STX expanded on their cost take out program and expects headcount reduction of 6,500 employees (14% of total headcount) by end of FY17. We suspect these take out actions will enable STX to achieve their target of “at least $2.50 EPS” in CY17.”

How The Market Reacted To The News

As investors one of the first things that we learn is that it’s important to watch the news. At the end of the day, the news moves the market. Any time there’s positive news released with regard to a publicly traded company, we can expect to see gains in the value of the stock associated with that company. Adversely, bad news will generally lead to declines. The news released today with regard to Seagate Technology was definitely not negative. As a result, we’re seeing strong upward movement in the value of the stock today. Currently (2:28), the stock is trading at $29.38 per share after a gain of $5.28 per share or 21.94% thus far today.

What We Can Expect To See Moving Forward

First and foremost, it’s important to remember that price movements in the market tend to happen through a series of overreactions. Today’s gains are massive. So, tomorrow, we can expect that there could be a correction, bringing the stock down to a more sustainable rate before growth can continue. However, with that said, I have an overwhelmingly bullish opinion of what we can expect to see from STX moving forward. While the company has had a hard time in the past, it seems as though restructuring efforts are likely to work in their favor. With increasing margins and products that are in demand, we should see strong profit from the company throughout the rest of the year. As a result, I’m expecting to see gains.

What Do You Think?

Where do you think STX is headed moving forward and why? Join the discussion in the comments below!