Is Seagate Stock A Better Pick Over Its Industry Peer?

STX: Seagate Technology logo
Seagate Technology

We believe that Western Digital stock (NYSE: WDC) is currently a better pick than its industry peer, Seagate stock (NYSE: STX), given its better growth prospects. Seagate is trading at 1.2x trailing revenues compared to 0.7x for Western Digital. Investors have assigned a higher multiple to STX stock due to its superior profitability and better financial position, as discussed below.

If we look at stock returns, both have seen significant cuts of about 30% in the last twelve months, faring worse than the broader S&P 500 index, down 12%. There is more to the comparison, and in the sections below, we discuss why we believe WDC is a better pick over STX. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Seagate vs. Western DigitalWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Both Seagate And Western Digital Have Seen Similar Revenue Growth

  • Both companies have seen their revenue decline in the recent past. While Seagate’s revenue plunged 37% to $3.9 billion for the six months ending Dec 2022, Western Digital’s sales were down 31% to $6.8 billion over the same period.
  • This can be attributed to weak consumer demand and higher inflation. Total smartphone shipments plunged 18% y-o-y in Q4 2022, and the metric is expected to decline in the low single-digits in 2023, impacting the demand for storage.
  • If we look at a slightly longer time frame, both Seagate and Western Digital have seen their sales rise at a similar pace in the last three years. Seagate saw its sales rise at an average annual rate of 4% to $11.7 billion in 2022, compared to $10.7 billion in 2019, while Western Digital’s sales grew at an average annual rate of 4.4% to $18.8 billion in 2022, compared to $16.6 billion in 2019.
  • Both Seagate and Western Digital have benefited from a rise in cloud storage and gaming demand.
  • Our Seagate Revenue Comparison and Western Digital Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, both companies’ revenue is expected to fall over 30% each in fiscal 2023 due to weak consumer demand, high inflation, and economic uncertainties. However, consumer demand will likely gain traction in 2024, with sales expected to rise in the high teens.
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2. Seagate Is More Profitable 

  • Seagate’s operating margin of 12.9% over the last twelve-month period is better than 8.7% for Western Digital.
  • This compares with 16.5% and 3.4% figures seen in 2019, before the pandemic, respectively.
  • Seagate’s free cash flow margin of 13.4% is higher than 7.7% for Western Digital.
  • Our Seagate’s Operating Income Comparison and Western Digital’s Operating Income Comparison dashboard provides more details.
  • Looking at financial risk, Seagate fares better. Its 52% debt as a percentage of equity is lower than 69% for Western Digital, while its 16% cash as a percentage of assets is higher than 9% for the latter, implying that Seagate has a better debt position and more cash cushion.

3. The Net of It All

  • We see that both companies have demonstrated similar revenue growth. Seagate is more profitable and has a better financial position, while Western Digital is available at a comparatively lower valuation multiple.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Western Digital is currently a better pick.
  • Our forecast indicates an expected return of 38% for Western Digital over the next three years vs. a 3% expected return for Seagate, implying that investors will likely be better off picking WDC over STX, based on Trefis Machine Learning analysis –  Seagate vs. Western Digital – which also provides more details on how we arrive at these numbers.

While WDC stock looks like it can outperform STX, it is helpful to see how Seagate’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Barnes vs. Seagate.

Given higher inflation and the Fed raising interest rates, among other factors, STX stock has declined over 30% in the last twelve months, underperforming the broader S&P 500 index, down 11%. Can it drop more? See how low Seagate stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
STX Return -6% 15% 59%
WDC Return -10% 10% -49%
S&P 500 Return -1% 3% 76%
Trefis Multi-Strategy Portfolio -4% 3% 225%

[1] Month-to-date and year-to-date as of 3/23/2023
[2] Cumulative total returns since the end of 2016

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