Disk Drives: Barclays Launches Coverage; Likes STX Over WDC
By Eric Savitz
Barclays Capital analyst Ben Reitzes this morning picked up coverage of disk-drive providers Seagate (STX) and Western Digital (WDC). He starts STX with an Overweight rating and $26 target; he rates WDC Equal Weight, with a $50 target.
Reitzes says that Seagate “should be able to close its valuation discount to WD as demand improves in enterprise related markets, which accounts for about 9% of STX’s units but over 25% of revenues with much higher margins.”
He adds that “our research suggests that we are in an era of inventory discipline and a multi-quarter (perhaps
multi-year) era of strong demand in disk drives helped by strong performance in PCs and enterprise spending.”
Reitzes isn’t exactly negative on Western Digital, but he does advise investors to buy STX instead. “While we give Western Digital credit for solid execution and share gains over the past several years, we believe this phenomenon is already reflected in its valuation premium to Seagate.”
He notes that WDC has been trading at 9.2X FY 2011 estimated EPS, versus 7.2x for STX.
In today’s trading, STX is down 37 cents, or 2%, to $17.97, while WDC is down $1.23, or 2.7%, to $44.54. |
