Wedbush Downgrades STEC Inc. (STEC) to Neutral; Slashes PT & Estimates

November 4, 2009 9:39 AM EST

Wedbush downgrades STEC Inc. (Nasdaq: STEC) from Outperform to Neutral. Price target slashed from $39 to $18.

Wedbush analyst says, "We are downgrading STEC to a Neutral rating and we are reducing our PT to $18 following STEC’s surprising revelation last night on its Q3 earnings call that its leading SSD customer (EMC) had likely built inventory of its flagship ZeusIOPs. STEC announced it was implementing a “strategic sales and marketing incentive program designed to promote the integration” of its SSDs into EMC’s (NYSE: EMC) customers systems and that it would be implementing this sales and marketing strategy with its other customers. While we had highlighted to investors our concerns that the competitive landscape would likely pose challenges to STEC’s earnings and revenue in the 2H:10E, we were completely caught off guard by the stall in the adoption rates of SSDs and its negative impact to near-term earnings and revenue. While the stock traded down about 25+% in after hours, we do not view STEC as a value play at this level. We recommend investors move to the sidelines as we think the stock will likely be range bound until we have better visibility on (1) integration rates of SSDs, (2) customer production ramps, (3) competitive landscape, and (4) 2010 SLC NAND pricing. Our new 12-month PT of $18 is based upon 12x (from 17x) our lowered 2010 pro forma EPS estimate of $1.58 (from $2.29)."

To see more analyst ratings on STEC Click Here.

STEC, Inc. designs, develops, manufactures, and markets custom memory solutions based on flash memory and dynamic random access memory (DRAM) technologies.

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