Its certainly all about the tracking stock project:
Analyst: Kimberly Alexy (Prudential??)
Data Storage Index Performance and Highlights
The Disk Drive Composite, comprised of Maxtor, Quantum, Seagate, and Western Digital shares,
declined 2.0% last week (-12.9% YTD). For the same period, the S&P 500 returned a gain of
1.1% (+15.4% YTD).
Quantum shares gained 4.6% WTD (+21.5% YTD) and was the only disk drive maker stock in our
universe to experience a gain amidst last week's bleak earnings announcements forecasting a
deteriorating environment into the 2H. We expect to see continued weakness in the sector but
believe the issuance of tracking stock will unlock the value of its enterprise business and will serve
as a catalyst for the stock. The shareholder vote for approval of the tracking stock is slated for
Friday 7/23 and
the company will report earnings on 7/22. We estimate earnings at $0.10 per share, inline with the
Street.
Seagate shares declined 6.2% for the week (-12.2% YTD) following the release of 4Q earnings of
$0.30, below our estimate of $0.35 and consensus estimates of $0.34 based on pre-announced
guidance. The weaker than expected results were largely cause by aggressive pricing trends, but
also caused by unexpected weakness in the
enterprise business attributed to unit shortfalls caused by internal execution difficulties. Due to
continued aggressive pricing trends, Seagate now expects to report an operating loss for its
September (and likely December) quarters. We have
reduced our September Q estimates to a loss of $0.07 from a gain of $0.39 and taking our FY00
estimates to $0.21 from $2.02.
Maxtor shares declined 2.3% for the week (-62.5% YTD) The company will report earnings on
7/22, and we are expecting a loss of $0.46 per share, in line with management's
pre-announcement.
Western Digital shares declined remained flat for the week (-58.9% YTD). The company will report
earnings on 7/21 and we are expect the 36ss 0ay exceed our $0.91 per share and consensus
estimates of a loss of $0.94.
We believe the disk drive stocks will remain under pressure as a result of continued price erosion.
We believe that aggressive pricing trends will continue and will likely intensify into the 2H and that
earnings expectations generally remain overly optimistic. We would, however, use industry
weakness to purchase shares of Quantum on our belief that the tracking shares will unlock the value
of the enterprise storage business. We remain neutral on the rest of the group.
And Bear Stearns:
Quantum Corp. (QNTM - $2513/16) Buy Price Target: $34-$52 Still See A Near-Term “Arbitrage”
Opportunity
Market Cap: $4.3 Billion Index: S&P 400 Mid Cap
Andrew Neff - Data Storage
We still see a near-term “arbitrage” opportunity for QNTM. This is a compelling story and it is
happening soon. We recommend value players buy QNTM before the tracking stock goes "when
issued." If the 7/23 shareholder vote goes as planned, QNTM is scheduled to go “when issued”
with its two tracking stocks (Quantum Data Storage & Systems (QDSS) and Quantum Hard Disk
Drive (QHDD)) on 7/26. QNTM is treated like a disk drive stock. When we look at the two pieces,
we think QNTM becomes a more compelling value. In our view, the combined entities are worth
$34-$52: 1) We believe QHDD (the disk drive portion) could sell between $7-$16 in current
QNTM shares (i.e., $14-$32 in QHDD prices -- QHDD will have one-half the shares as QNTM in
order to avoid single-digit prices for this unit ). 2) We think QDSS (the tape drive portion) is worth
$27-$36.
Bear Stearns: 3/2000E $0.90; Q1 $0.09 3/2001E $1.90
Consensus: 3/2000E $1.03; Q1 $0.10 3/2001E $1.87 Consensus Rating: 2.1 (last updated 7/16)
Maybe if upcoming earnings come in below 10 cents a share there will be some trouble, but in the end the tracking stock should drive the stock price in due course above 30$ anyway.
A quote from the Yahoo thread: "Its the closest thing to shooting fish in a barrel I've ever seen"
I'm not that optimistic, DD stocks can be extremely frustrating. If they execute similarly to SEG and come in below 5 cents (the very low end of their broad guidance range) we will experience some bad days.
As mentioned above: Anything below 10 may spell some short term trouble.....
Cheers Michael
P.S.: QNTM is currently my largest holding and I may fail to be tough and objective enough here and there......
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