Seagate and WDC: Turning Bullish on Disk Drives

Includes: STX, WDC
by: Eric Savitz

Merrill Lynch analyst Scott Craig turned bullish on the disk-drive industry Monday morning, raising his ratings on both Western Digital (NYSE:WDC) and Seagate (NASDAQ:STX) to Buy from Underperform. His WDC price target jumps to $35, from $19; for STX, his new target is $14, up from $6.

“While some may view our upgrade as late, we expect another run in the shares driven primarily by leverage and positive earnings estimate revisions,” he writes. “We believe HDD fundamentals have improved off cyclical lows, with more encouraging pricing trends, low inventory levels, some stabilization/seasonal PC build and pending operating leverage.”

On Western Digital, he adds that the company is likely to enter the enterprise hard-drive market before the end of 2009, a move he describes as “a longer-term call option.”

On Seagate, he asserts that recent management changes should drive the company back to product and profitability leadership. “The company’s hard line on costs and resizing of capacity is a product of a more disciplined management focus,” he writes.

STX is up 24 cents, or 2.3% to $10.52. WDC is up 20 cents, or 0.8%, to $26.42.

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