Seagate Slammed By Margin Concerns, Rare Earths Prices (STX, WDC, OCZ, EMC, NTAP, SNDK, STEC, MCP)
Shares of hard disk drive maker Seagate Technology (STX) are plunging 17% after the company said rising rare earths prices will result in a 200-basis point margin headwind in the second half of this year. California-based rival Western Digital (WDC), which reports earnings after the close of U.S. markets today, is following suit with a decline of 8%.
Not surprisingly, the Seagate news is weighing on the Data Storage Stocks Index, which is lower by 1.1%. Research firm Brean Murray said Western Digital will probably feel a more muted impact from rising rare earths prices than Seagate, but that the latter will feel a pinch nonetheless. Rare earths prices have been soaring over the past year as China, which controls 95% of the global export market for the 17 elements used to produce an array of high-tech gadgets, has consistently pared its export quotas. The news may be having a positive affect on the Rare Earths Stocks Index, which up 1.2% today. Shares of Molycorp (MCP), the largest U.S. rare earths miner, are trading flat on the day.
Needham said despite the rare earths issue, Seagate’s fiscal fourth-quarter results and fiscal first-quarter guidance were consistent with the firm’s expectations and that the pullback in the stock could be a buying opportunity. The research firm is forecasting a margin recovery for Seagate in fiscal 2012. Stifel Nicolaus said Seagate could trade back to the $14 area, which it has done today, and that Seagate’s, and probably Western Digital’s, TAM guidance is conservative.
Acknowledging the competitive threat from tablet devices, Stifel Nicolaus sees Seagate as the winner from further hard disk drive industry consolidation and notes that at current valuations, the stock shows an attractive entry point for longer-term investors.
Shares of OCZ Technology Group (OCZ) are off 1% despite Roth Capital initiating coverage of the stock with a “buy” rating and a $12 price target, which is well above where the shares currently trade.
Investors can track the Data Storage Stocks Index for performance trends and a suite of other metrics at tickerspy.com.
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David Einhorn Buys Seagate Technology (STX), Sells Various Stocks (market folly, 7/13/11)
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