Pru: AGR's Downside 'Appears Limited', tgt $18
06.16.05, 1:30 PM ET
Prudential Equity Group maintained an "overweight" rating on Agere Systems (nyse: AGR - news - people ) and said the company remains poised for sales growth despite anticipated share loss at hard disk-drive maker Maxtor (nyse: MXO - news - people ) and Apple Computer (nasdaq: AAPL - news - people ). "We believe Agere's shares have recently underperformed due to: anticipated share loss at Maxtor, anticipated share loss at Apple, and selling of shares by previous owners of Modem-Art, recently acquired by Agere for 7 million shares (post reverse-split)," it said. "We believe these issues are largely accounted for in the current stock price." Prudential said one "ongoing concern" for Agere investors has been the expected loss of business at Maxtor, approximately 17% of Agere's revenue. "Currently, Agere is the sole read channel/SoC supplier to Maxtor's 80 GB desktop hard drives, but we believe that Marvell Technology Group (nasdaq: MRVL - news - people ) has won a socket in Maxtor's next-generation desktop HDD (160GB)," said Prudential. "We expect this product to ramp in early 2006 and are modeling Marvell to take 20% share per quarter at Maxtor beginning in the March quarter of 2006." Nonetheless, Prudential forecasts 9% sales growth for Agere in 2006 due to strength in mobile solutions, telecommunications and networking. "We believe Agere will benefit from a number of product cycles in these areas, including 3G, GigE, satellite radio silicon, storage area networking ASICs, and DSPs for wireless infrastructure, which should more than offset the share loss in Maxtor HDDs and Apple chipsets," it said. Prudential said "continued strength" at Sirius Satellite Radio (nasdaq: SIRI - news - people ) as well as new customer engagements with QLogic (nasdaq: QLGC - news - people ) and others will likely offset share losses at Apple. The research firm reiterated its $18 price target on the stock. "At $12 per share, Agere is the cheapest stock in our universe on price-to-earnings and enterprise value-to-sales [ratios]," said Prudential. "Its P/E is 11 times, and EV/S is 0.9 times, about 50% and 25% of the average stock in our universe of coverage, respectively. The downside to the current stock price appears limited." |
