Seagate Technology (STX)

[chmcnfunds]

BofA upgrades Seagate, Western Digital ahead of earnings • 9:37 AM

Eric Jhonsa, SA News Editor

Believing PC weakness is priced in and valuations are low, BofA/Merrill has upgraded Seagate (STX +0.8%) to Neutral and Western Digital (WDC +1.1%) to Buy ahead of the companies' calendar Q1 reports (set for April 17 and 28, respectively).
BofA thinks pricing is holding up well in spite of PC-driven unit weakness, and that a mix shift towards higher-margin enterprise drives (fueled by Web/cloud demand) is propping up both ASPs and gross margins.
Nonetheless, the firm is respectively cutting its Q1 and Q2 hard drive market shipment (NYSE:TAM) forecasts by 4M and 3M to 126M and 129M - Seagate/Western's Q1 forecast is at 135M - and its 2015 TAM forecast by 9M to 525M. Estimates for both firms have been moderately cut.
Regarding Western, BofA argues the company's strong SSD presence (made possible by a string of acquisitions) "ensures that the cannibalization of performance drives [by SSDs] is not a significant net negative."
The upgrades come a day after Brean reiterated Buy ratings on Seagate/Western (while cutting estimates), and Jefferies added Western to its Franchise Pick list; like BofA, Jefferies cited the demand/ASP boost provided by high-capacity cloud drives, and argued PC issues are priced in.
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