Susquehanna Downgrades Seagate Technology (STX) to Neutral
Susquehanna downgraded Seagate Technology (NASDAQ: STX) from Positive to Neutral with a price target of $45.00 (from $60.00).
Analyst Mehdi Hosseini commented, "We are downgrading shares of STX to Neutral on the heels of last week's Sep Q preannouncement, given the following key factors: 1) the delay in getting 8 TB Nearline drives to market has resulted in share loss (importantly, higher margin), with Mar Q being the earliest that STX could begin regaining share - as such, we'd rather see evidence of a rebound in share while on the sidelines, 2) STX's Enterprise SSD strategy will likely need more time than some think before it delivers material results (it took ~4-5 years for HGST to begin generating material results from its collaboration with Intel) while competition is increasing, and 3) we believe STX needs to do more to reduce its Client and Mission Critical HDD footprint (and thus help improve the overall margin profile) given secular declines from SSD penetration, and we choose to see evidence of execution in its Opex savings program (though we concede some progress in Sep Q has been made). Additionally, we note that WDC's recent agreement with Unisplendour for a 15% stake could give them the upper hand in Chinese HDD demand - which we concede is purely anecdotal in nature, but could enable WDC to gain further share (particularly in Nearline, where Chinese cloud providers are building out their environments). We are reducing our FY16/FY17 EPS to $3.12/$4.00 from $3.76/$4.75, and lowering our PT to $45 from $60, to reflect our lowered estimates and lower P/E multiple (due to lack of consistent execution) of 11x vs. prior ~13x."
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Shares of Seagate Technology closed at $39.56 yesterday.