Seagate Rallies on Analyst’s Outlook for Higher Margins in Thriving Disk-Drive Market
Seagate will benefit from changes going on in the hard-drive segment, wrote UBS analyst Timothy Arcuri.
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Seagate shares got a lift Monday from UBS analyst Timothy Arcuri, who boosted his firm’s rating on the disk-drive maker to Buy from Hold, with a new price target of $105, up from $83.
Arcuri was less keen on Western Digital (WDC), repeating a Hold rating, while trimming his target price to $66, from $72, on concerns about the company’s flash memory business. The stock took a hit.
The analyst wrote that he sees the hard-disk drive business at a “structural inflection,” which should yield both a more stable supply/demand balance and higher margins. Near-term industry dynamics also looks positive, he added.
On the other hand, Arcuri wrote, the flash memory market remains “structurally oversupplied and highly capital intensive.” He thinks the supply issue for the flash market will get worse in 2022. Western’s flash business makes it a less compelling investment than Seagate, he concluded.
“We expect Seagate to benefit from structural changes under way in the [hard drive] segment,” Arcuri wrote.
The analyst noted that “explosive growth in data storage” has increased a willingness to sign longer-term supply arrangements, while cryptocurrency-sector demand for disk drives has reduced channel inventory. Not least, he said new technologies like heat-assisted drivers should keep off competition from flash-based alternatives for high capacity applications “for many years to come.”
Arcuri lifted his per-share profit estimates for Seagate for calendar 2022 and 2023 —both Seagate and Western have June fiscal year ends—above Street consensus. He slashed his forecast for Western to well below Street views.
For Seagate, he sees profits of $8.33 a share next year, above the Street at $8.19, and $8.90 in 2023, ahead of consensus at $8.06. For Western, he’s projecting $9.11 next year, below consensus at $11.05, and $4.17 for 2023, far below consensus at $11.09 a share.
In morning trading, Seagate shares were up 1.1%, to $91.29. Western Digital was off 1.3% at $62.35.
Write to Eric J. Savitz at [email protected]
