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Shares Seagate Technology PLC (NASDAQ:STX) have seen an "excellent run" in 2018, but industry-wide HDD headwinds now warrants a bearish stance on the stock, according to Evercore.
The Analyst
Evercore ISI's C.J. Muse downgraded Seagate from In Line to Underperform with a price target lowered from $55 to $45.
The Thesis
The bearish case for Seagate's stock rests partially on the belief that the NAND market has become "a bit complacent" in terms of pricing, especially in terms of demand elasticity and increasing HDD cannibalization, Muse said in a note. In fact, increasing price competition within QLC NAND could shift from a positive factor to a headwind into 2019 and create a scenario where Seagate's topline growth will be flat under a best-case scenario while gross margins move lower.
Meanwhile, the stock's approximate 5 percent dividend yield offers investors a certain degree of yield support but this is overshadowed by expectations for declining gross margins and negative revisions to consensus estimates next year, the analyst wrote.
Muse said Seagate's stock valuation needs to be put in perspective as its valuation implies a 10.9 times EVE/PS multiple on 2019 estimates, which is a premium to Micron Technology, Inc. (NASDAQ:MU) at 10.2 times. As such, Micron would be the better stock pick among the two given its more attractive valuation but also a solid demand for DRAM and a favorable supply-demand balance and expectations for incremental capital returns in the future.
Price Action
Shares of Seagate Technology closed Tuesday down 7.7 percent at $49.41.
Related Links:
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.
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