Alert: BofA Is Upgrading Seagate

In a report published Tuesday, BofA Merrill Lynch analysts upgraded the rating on Seagate Technology Public Limited Company STX to Neutral, with a price objective of $60, saying that the PC weakness is already priced into the company's stock. Seagate's share price has declined 16 percent since the beginning of March. The analysts believe that the "fundamentals have bottomed" and the company's share price already reflects the PC weakness. In the report BofA Merrill Lynch noted, "As a positive, pricing is holding up surprisingly well, given the unit weakness, and mix shift to higher-margin enterprise HDDs is providing a high degree of resiliency to gross margin. STX is trading at 11x our C16 EPS of $4.96 (in line with peers) and we see shares as fairly valued." "In the past few weeks our checks have indicated an incrementally weaker PC market, with further downside to both desktop and notebook HDD units. We now have overall HDD unit TAM at 126mn for the March quarter (vs. STX/WDC guidance of 135mn and our prior 130mn units). For the June-Q our TAM goes to 129mn from 132mn, and for C2015 our estimate is now at 525mn from 534mn units," the analysts wrote. The analysts believe that the company will benefit from data storage growth, with demand from cloud providers being a "tailwind for capacity enterprise HDDs" as well as its Systems business. The March revenue and EPS estimates have been reduced from $3.39bn and $0.97 to $3.34bn and $0.95, respectively. For FY16, the revenue and EPS estimates have been cut from $14.2bn and $4.78 to $14.0bn and $4.66. The downward revision in the estimates reflects lower PC hard-disk-drives (HDDs).