Seagate Replaces Sun On Goldman's Buy List

Goldman Sachs Friday pulled Sun Microsystems (SUNW) from its “Americas Investment Buy” list, and replaced it with Seagate (STX). In a research note attributed to Goldman’s Laura Conigliaro and several other analysts, the firm wrote that pricing has moderated for Seagate’s drives, while demand appears to be exceeding expectations in multiple categories, “suggesting that margins will firm faster than we have been modeling going into the back half of the year.”

Conigliaro says higher-than-forecast margins and and shipments could add 5 cents to Goldman’s already above-consensus EPS estimate of 45 cents for the September quarter. She says the next big catalyst for the stock could be the company’s upcoming September 7 analyst meeting.

As for Sun, Goldman notes that its thesis has been that a combination of a strong end to its fiscal year and a meaningful headcount cut would move the stock higher into the seasonally strong second half. Goldman notes that Sun had a strong June quarter for margins, but that a planned headcount reduction of 1,000-1,500 is “unspectacular,” which she says leaves the stock without a near-term catalyst “since the September 5 analyst meeting is likely to be more of an update.”

Adds Conigliaro: “We still expect Sun to work from these levels, but we have been wrong about the timing and feel that there are better opportunities for share appreciation in our coverage shorter term.”

STX vs. SUNW 1-yr chart: