AmTech Remains Neutral on Seagate (STX)

May 15, 2008 12:33 PM EDT

American Technology Research released an update on the HDD industry and how the current environment is affecting fundamentals at Seagate Technology (NYSE: STX). The firm maintains a Neutral rating on Seagate.

The firm said that while pricing declines in 3.5-inch ATA drives have become less aggressive recently, AmTech is still concerned with the longer-term fundamentals of Seagate's HDD business, as this segment is unpredictable and cyclical.

AmTech notes that Seagate's inventories have moved slightly higher, but still remain lean, considering the current environment. Also, the firm believes that if current pricing conditions continue, Seagate could hit the upper-end of its previously issued FY08 guidance of $0.41-$0.45 in EPS and $2.85-$3 billion in revs. AmTech's EPS and revs estimates are $0.45 and $2.95 billion, respectively, compared to the Street estimates of $0.42 in EPS and $2.9 billion in revs.

The firm also points out that while shares of Seagate seem to be oversold at 9x CY09 EPS, potential negatives outweigh this valuation thesis.

Seagate Technology engages in the design, manufacture, and marketing of disc drives for enterprise, desktop, mobile computing, consumer electronics, and branded solutions markets of the disc drive industry.

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