CIBC on SAN Stocks: 'Buy'
CIBC World Markets began coverage of three prominent storage networking stocks Friday, initiating Buy ratings for Brocade Communications Systems Inc. (Nasdaq: BRCD - message board), Network Appliance Inc. (Nasdaq: NTAP - message board), and QLogic Corp. (Nasdaq: QLGC - message board), despite the fact that stock prices across the IT sector remain depressed.
Paul Mansky, enterprise storage analyst with CIBC, gave the following targets: Brocade, $50; Network Appliance, $17; and QLogic, $67.
At 2:30 PM EST on Friday all three stocks were up: Brocade by 7.67% at $44.06; Network Appliance up 6.24% at $13.97; and Qlogic up 3.51% at $64.46 a share.
Mansky told Byte and Switch that the three companies' valuations exceed the long-term growth opportunities of the enterprise storage market overall. His reasons for picking these particular stocks is fairly obvious: They are the leading players in their respective sectors.
In the near term, over the June quarter, Mansky says, "These stocks are subject to some compression because of the lack of visibility into spending, but in the long term storage networking stocks will be strong." His reasons for optimism are twofold:
The storage market in general will grow at double the rate of the overall IT market.
The storage networking piece of the market will grow twice as fast as storage in general.
Mansky's comments are in line with recent remarks by Merrill Lynch & Co. Inc. analyst Thomas Kraemer, who says, "The strong economic rationale for networked storage is obvious when the dollar cost per terabyte is added up for direct-attached storage [DAS] systems versus NAS and SAN solutions... The network solution is half the cost." He adds that significant economies of scale (especially pertaining to labor costs) are achieved in a networked storage setting. (see Merrill Lynch Sizes Up Network Storage: byteandswitch.com.
? Jo Maitland, Senior Editor, Byte and Switch
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