Veriton Investment

Seagate Resumes Buybacks Amid Rising Free Cash Flow Momentum

Seagate Technology Holdings plc STX announced plans to resume share buybacks in the September quarter, underscoring its confidence in the financial strength and outlook post a strong fiscal 2025 performance.

In fiscal 2025, revenues were $9.1 billion, up 39% year over year, driven by robust nearline demand from cloud customers. A key driver of Seagate’s growth is the ongoing implementation and expansion of its HAMR technology, aimed at increasing areal density and supporting next-generation storage solutions. These technological advances are crucial for meeting the increased demand for high-capacity storage in hyperscale data centers, AI training workloads and decentralized edge environments. Non-GAAP operating profit more than tripled to $2.1 billion in fiscal 2025.

Free cash flow in the fiscal fourth quarter was $425 million, driven by robust top-line growth and disciplined capital expenditures of 3% of revenues, below the long-term target range of 4-6%. Annual free cash flow was $818 million.

STX expects cash generation to expand in the back half of calendar 2025, even with a large variable compensation payout in the current quarter. Further, structural changes and a robust product pipeline are expected to drive higher profitability and cash generation in fiscal 2026.

With profitability trending higher and mass capacity storage demand accelerating, the company appears well-positioned to balance growth with meaningful capital returns, thereby enhancing shareholder value in fiscal 2026 and beyond. In fiscal 2025, the company distributed nearly 75% of free cash flow through dividends, while paying down gross debt of about $150 million in the fiscal fourth quarter.

Western Digital Corporation WDC is also gaining from rising demand for high-capacity storage driven by cloud computing and generative AI. Both require massive and cost-effective storage backbones that HDDs still provide. WDC’s revenues skyrocketed 51% year over year to $9.5 billion in fiscal 2025. Free cash flow amounted to $675 million in the fiscal fourth quarter, up 139% while annual free cash flow was $1.4 billion. With strong cash flow, a solid balance sheet and confidence in its business outlook, WDC’s board approved up to $2 billion in share buybacks. In the fiscal fourth quarter, the company repurchased about 2.8 million shares for $149 million. WDC also paid $36 million in cash dividends at 10 cents per share.

Pure Storage PSTG recently reported second-quarter fiscal 2026 results with revenues growing 13% to $861 million. Growth was broad-based across the portfolio, driven by strong demand from large enterprises, ongoing momentum in FlashBlade, particularly FlashBlade//E, and accelerating adoption of its core software and services offerings, including Evergreen//One, Cloud Block Store and Portworx. Free cash flow was $150.1 million compared with $166.6 million in the year-ago quarter. In the fiscal second quarter, the company returned $42 million to its shareholders by repurchasing 0.8 million shares. Pure Storage has $109 million left under its current authorization plan. PSTG does not pay a dividend.

In the past month, shares have gained 9.6% against with the Zacks Computer Integrated Systems industry’s decline of 3.5%.

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In terms of forward price/earnings, STX’s shares are trading at 15.58X, lower than the industry’s 19.97X.

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The Zacks Consensus Estimate for STX’s earnings for fiscal 2026 has been revised up 4.2% to $10.30 over the past 60 days.

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Currently, Seagate has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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