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Seagate Gets Second Upgrade Of 2016 By Morgan Stanley

Although there are risks of flash cannibalizing the HDD market, Seagate Technology PLC STX may achieve improving gross margins, given healthy inventory levels and newly announced manufacturing cuts, Morgan Stanley’s Katy L. Huberty said in a report. She upgraded the rating on the company from Underweight to Equal-weight, while raising the price target from $20 to $27.

This comes as the second upgrade for Seagate of 2016, with Benchmark raising their rating on the company from Sell to Hold, and the price target from $35 to $32.

Gross Margin Recovery

Seagate’s gross margin could recover from the low of 23 percent in March to the bottom-end of the 27- 32 percent target range in FY17, ending June 2017, with Morgan Stanley’s proprietary channel tracker pointing to a substantial decline in aged/end-of-life inventory and given a 16 percent reduction in manufacturing headcount. Analyst Katy Huberty raised the EPS estimate for FY17 from $2.50 to $3.

“While we continue to worry about demand shortfalls as NAND replaces disk drives in data centers and notebooks – a trend that cut consensus estimates by nearly half since our downgrade in July 2015 – the capacity reductions, consolidated competitive landscape, and reduced channel inventory should help improve pricing trends and margins in the near-to-medium term,” Huberty wrote.

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DateFirmActionFromTo
Jul 2016Morgan StanleyUpgradesUnderweightEqual-weight
Jun 2016JefferiesMaintainsBuy
May 2016JP MorganDowngradesNeutralUnderweight

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