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Seagate Technology No Longer A Sell At Citi

The HDD industry’s duopolistic structure appears to be improving, given the recent high-capacity enterprise HDD product cycles and the announcement of significant cost reductions at Western Digital Corp WDC 1.77% and Seagate Technology PLC STX 0.53%, Citi’s Stanley Kovler said in a report. He added that this “closes the gap” between Seagate and Western Digital [Rated: Buy].

Analyst Stanley Kovler upgraded the rating on Seagate from Sell to Neutral, while raising the price target from $18 to $29.

Strong Foothold In The Market

Seagate, along with Western Digital, dominates the HDD market and their combined market share is more than 70 percent, Kovler noted. In FY15, Seagate’s OEM customers accounted for 71 percent of total revenues. Moreover, the Asia Pac region contributed 55 percent of the company’s revenues, with the Americas contributing 28 percent and EMEA accounting for 17 percent.

Rationale For Neutral Rating

“Despite our more constructive view on the high-capacity Enterprise HDDs segment, we continue to expect pressure on overall HDD industry units from weaker PC and mission critical drives and model a -3% revenue CAGR for STX through 2019,” the analyst wrote.

Seagate has recently been exhibiting inconsistent execution and the backdrop is expected to be challenging, despite the stabilization in enterprise, Kovler added.

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Jul 2016CitigroupUpgradesSellNeutral
Jul 2016Morgan StanleyUpgradesUnderweightEqual-weight
Jun 2016JefferiesMaintainsBuy

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