Disk Drives: Caris Cuts STX, WDC Ests On Weaker Drive Sales
By Eric Savitz
* Tuesday, June 15, 2010 ET
blogs.barrons.com
Seeing some softening in hard-disk drive demand, Caris & Co. analyst Robert Cihra today trimmed his price targets and earnings estimates for Seagate (STX) and Western Digital (WDC).
Cihra notes that he sees “moderating” PC sector growth with more cautious ordering from manufacturers. “While we had warned of a slowdown in Q2 momentum back in February, we now factor in slightly weaker [hard drive] units,” as well as more aggressive pricing.
“With the critical back-half of June still ahead, the swing-factor remains how many units vendors push at the risk of pricing,” he writes. “This said, reflecting competitive dynamics that we continue to believe look at least somewhat different this time and certainly set up healthier than history, we see cuts to HDD vendor build plans as a positive effort to not overbuild inventory or overshoot demand.”
Cihra says that corporate PC demand really is recovering, as expected, but that enterprise PC drives tend to have lower capacity than those for media-hungry consumer PCs.
For STX, Cihra now sees June quarter EPS of 83 cents a share, down from 92 cents. For WDC, his EPS forecast falls to $1.44, from $1.55.
CIhra contends “valuations remain quite compelling” for the drive stocks, and he maintains Above Average ratings for both Seagate and Western Digital, noting that competitive dynamics in the industry are the healthiest they have been in more than a decade. But he cuts his STX target to $25, from $30, with WDC down to $50, from $54.
Nonetheless, both stocks are trading higher today:
* STX is up 54 cents, or 3.6%, to $15.44.
*
WDC is up 80 cents, or 2.3%, to $35.15. |
