TDK Down Over 20% In The Past Two Days -- A Buying Opportunity? (TDK)

TDK's ADRs (ticker: TDK) are down nearly 21.5% over the past two days. In Japan, the sell-off following the Seagate-Maxtor deal was limited to 10%; however the sell-off in the U.S. of TDK's ADRs was upwards of 16%. Figuring in the currency conversion rate at Y117/US$1, I calculate a $10 per share difference between the closing price of TDK's shares in Japan on Thursday (TSE closed today) versus its ADRs close on the same day. In morning trading today, TDK had been up around 1% but its current real-time ECN quote shows it up 5-cents or less than a tenth of a percent. Is this a buying opportunity?

TDK's closing price on Thursday in Japan was Y8,690. On the same day it was subsequently downgraded by Morgan Stanley (MWD) from "overweight" to "equal weight." Newratings.com reports that its target price has been reduced by Morgan Stanley from Y10,000 to Y9,400. Despite the downgrade, its ADRs are still trading at a huge discount to its shares traded in Japan. And even using the target of Y9,400 there is an extra $6 of upside in addition to the $10 differential for a total potential upside of $16. A little over a month ago Merrill Lynch (MER) had upgraded TDK's target from Y9,500 to Y10,000 maintaining its "buy" rating.

In a research note published yesterday, Morgan Stanley analysts mentioned that TDK is likely to be adversely impacted by Seagate’s proposed acquisition of Maxtor. Maxtor, its largest HDD head customer, may begin in-house production of HDD heads, following the merger. Morgan Stanley also revised its operating income estimates for TDK for FY05, FY06, and FY07 to Y67.6 billion, Y85.9 billion and Y81.1 billion, respectively. (source: newratings.com)