Capstone Starts Enterprise Storage Stocks: NTAP, QLGC, WDC, EMC, XRTX at Buy, STX, ISLN, BRCD, ELX at Hold

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Capstone Investments' Shebly Seyrafi has initiated coverage on the Enterprise Storage group this morning.

With Buy ratings:

• NetApp (Nasdaq: NTAP) - $55 price target. The firm calls the company "the #1 player in the network-attached storage market" and notes that it "has executed extremely well over the past year." Capstone suggests that NetApp "offers a leveraged play on the recovery in storage spending."
  
• QLogic (Nasdaq: QLGC) - $19 price target. Capstone likes that QLogic "has executed very well in its core FC HBA market over the years" and, further, "has a very strong relationship with HPQ." The firm sees three key growth drivers for QLogic: 1. CNAs, 2. 8Gbps, and 3. Infiniband.
  
• Western Digital (NYSE: WDC) - $33 price target. The firm notes several catalysts that have driven the stock down from $44 in late April: weaker PC sales, increased price competition and overall stock market weakness. "However, WDC has $10/share in net cash, should produce close to $4 in FCF/share in FY12, and is the market share leader in HDDs overall and in the faster growing mobile HDD market in particular."
  
• EMC Corp. (NYSE: EMC) - $25 price target. Capstone notes EMC's leading positions in many markets: high-end arrays, midrange and storage software. Moreover, the firm said that the company's 81% interest in VMware (NYSE: VMW) represents is "valuable."
  
• Xyratex (Nasdaq: XRTX) - $17 price target. The firm notes that NetApp is currently Xyratex's largest customer, also boasting Dell's (Nasdaq: DELL) EqualLogic segment as its #2 customer. Capstone is also bullish on the stock due to the company's recent agreement with HGST for HDD capital equipment.

With Hold ratings:

• Seagate Technologies (NYSE: STX) - $12.50 price target. Sees multiple headwinds including lost market share to "WDC in both desktop and mobile drives, and HDD sales..." that have recently been soft as prices are getting more competitive.
  
• Isilon (Nasdaq: ISLN) - $20 price target. Capstone maintains that maybe Isilon went "public too soon a few years back, but under new management and excellent execution, the company has become both profitable and fast-growing."
  
• Brocade (Nasdaq: BRCD) - $6 price target. Firm says, "BRCD has a very strong position in the SAN switch market, but has so far not proven that its early 2009 acquisition of Foundry Networks for $2.88 has paid off."
  
• Emulex (NYSE: ELX) - $10 price target. The firm likes Emulex's "strong #2 in the high-margin FC SAN market, and with its recent SeverEngines acquisition it is now moving aggressively to partake in the fast growing converged network adapter market..."

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