STEC Is on the Way to $20

Monday afternoon, specialty semiconductor maker STEC blew away estimates, reporting non-GAAP EPS of $.17 a share for the first quarter of 2009 on revenues of $63.5 million. Estimates called for $59 million in revs and earnings of $.10 a share. More importantly, STEC issued extremely strong guidance for Q2: The company now expects revenue to range from $68 million to $70 million with diluted non-GAAP earnings of $.20-$.22 cents a share. Analysts had been expecting $59 million in revs and $.10 a share for Q2.

STEC is being propelled by the accelerated adoption of its ZeusIOPS SSD product line into major Enterprise-Storage and Enterprise-Server OEM customers. Recently, STEC announced ZEUSIOPS uptake by both IBM and Hitachi (HIT), adding to its already impressive tier-1 lineup of EMC and Sun Micro (JAVA).

In the short term, STEC has no competition, with ZeusIOPS being the only SAS and FC option for Tier 0 Storage. This trend should continue for the remainder of this year. Intel poses the most immediate threat but not until next year.

Look for analysts' estimates for this year and for 2010 to be ramped up considerably. Pacific Crest analyst Kevin Vassily has been the most bullish analyst following STEC. He already had STEC earning $1.23 in 2010 on revenues of $336 million. Look for those estimates to be pushed closer to $1.75 a share for 2010.

The other analysts seem asleep at the wheel, except for Needham who raised their price target on STEC to $14 last week after the IBM deal was announced. Look for other upgrades to take place Tuesday as estimates get raised and the rest of the Street plays catch-up with the momentum that is being exhibited by STEC and what may be the hottest product in tech right now.

ZEUS IOPS revenues grew to almost $26 million for the first quarter of 2009, an increase of 267% from $7 million for the first quarter of 2008. This was a sequential jump of almost 30% from Q4. Q2 guidance calls for another sequential jump of 60% for this product line as new customers such as IBM and Hitachi quickly ramp up the ZEUS IOPS production.

Look for the stock to gap higher Tuesday morning and to work its way to $20 in the next few months. Shorts will be scurrying on the open on Tuesday, with almost 7.5 million shares short of the 20 million float.

All time highs are at $14.25. A measured move on this breakout should mean an ultimate move to the mid-20s and maybe the 30s before competition is able to come at STEC in a meaningful way.

DISCLOSURE: I am currently long STEC options and stock and will slowly start scaling out of more of my position tomorrow and then sit with the remainder of this position as a core long for the accounts I oversee.

Comments

[Mouseym:]

I have had 500 STEC for 5 years and I had another 500 that I sold. I am finally showing a profit. It is good after holding for so long and watching it go up and then way down.
Mouseym

May 13 03:37 PM

[The Inflect...:]

glad to hear you now have a profit on STEC. The stock is due for a pullback with the markets correcting. Today, I sold some options that I had a nice profit in and then bought some stock with this. I am looking for a pullback to the 13s to really back into STEC. I think it goes to the high teens after the next earnings report in August. Ultimately, am looking for the low 20s by year end as the ultimate target.

May 13 07:33 PM