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Tech Stock STX has forward PE in the 3's

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March 23, 2012 – Comments (1) | RELATED TICKERS: WDC , STX , FIO

WDC: Needham Ups to Strong Buy, $66 Target

 By Tiernan Ray

Shares of disk drive maker Western Digital (WDC) are up $2.49, or 6%, at $41.97, after Needham & Co.‘s Richard Kugele this morning raised his rating on the stock to Strong Buy from Buy, and raised his price target to $66 from $50, writing that the completion of its acquisition of Hitachi‘s (6501JP) storage business is going to be a turning point for the entire drive industry.

Western announced on March 8th it completed the purchase of Hitachi Global Storage Technologies, also known as Viviti Technologies, for $3.9 billion in cash plus Western stock.

Kugele thinks the era of consolidation in disk makers can help improve the valuation of the stocks, including competitor Seagate Technology (STX):

Since we first initiated coverage of the space over a decade ago, P/E has been the primary metric for relative valuation for the group. Initially, the rule of thumb was 12-15x, with that range gradually declining over time despite an industry that continued to consolidate, set higher peaks and troughs for margins and profitability, and generate significant cash flow. Today, after industry consolidation and with the space controlled by three players (really two), we would argue that the improved stability and profitability requires a new approach. Specifically, we see EV/EBITDA as a more accurate method for valuation of the true businesses for their improved fundamentals.

Read entire article atBarrons

1 Comments – Post Your Own

#1) On March 23, 2012 at 12:14 PM, IBDvalueinvestin (99.67) wrote:

STX has forward eps estimates now at $8.85 and given a reasonable pe of just 7x = $61.95/shr

It seems everytime I check back to see EPS estimates of STX they are higher than the last time I checked.

Not we forget the $1.9B STX had left last earnings to buy back shares. Its no wonder they wanna buy back shares trading at a forward PE in the $3's

 

 

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