Shares of Lake Forest-based disk drive maker Western Digital Corp. rose Wednesday after an analyst upgraded the stock on a more positive demand outlook.
Investors sent shares up almost 5% at close of trading on a recent market value of about $5 billion.
JPMorgan Chase & Co. analyst Mark Moskowitz upgraded Western Digital to “neutral” from “underweight” and boosted his price target to $19 per share, up from a previous estimate of $12 per share.
Western Digital was trading at around $21 per share on Wednesday.
“Our conversations with industry contacts suggest that hard disk drive demand trends seem to have sidestepped a worst-case scenario so far,” Moskowitz said in a research note. “We think Western Digital should trade more in line with peers.”
He downgraded the stock of Western Digital’s top rival, Scotts Valley-based Seagate Technologies LLC.
Seagate is the No. 1 maker of disk drives used in computers and consumer electronics. Western Digital is No. 2.
He downgraded Seagate to “neutral” from “overweight” and lowered his price target to $8.50 per share, down from $9.
“We do not see many catalysts for outperformance relative to peers, given end-market risks, weak enterprise units and Seagate’s challenges related to manufacturing yields and its debt load,” Moskowitz said.
Seagate’s shares were trading at around $6 per share on Wednesday on a recent market value of roughly $3 billion.
Moskowitz also downgraded shares of Costa Mesa’s Emulex Corp., a maker of electronics for data storage networks.
He rated Emulex’s shares “underweight,” from “overweight” and lowered his price target to $6 per share, down from $8.
Emulex was trading at around $5.50 per share on a recent market value of $460 million.
Moskowitz cited slowing growth in general for Emulex’s biggest product line,a profitable bit of electronics that speed up the flow of data on a storage network.
The products, called host bus adapters, are essentially small circuit boards loaded with chips that sit inside a server or data storage computer in a corporation’s rack room.
Sales of host bus adapters are expected to slow this year as companies freeze their spending on technology for the data center.
“Emulex shares have adjusted for a tough road, but we think that the host bus adapter growth outlook should remain cloudy even after signs of macro stabilization,” Moskowitz said. “In the near-term, weak server and storage hardware spending should keep host bus adapter stocks in a holding pattern.”
Moskowitz has an “underweight” rating on Aliso Viejo’s QLogic Corp., Emulex’s top rival for host bus adapters.
QLogic has a bit more than half of the market for host bus adapters. The two companies together hold more than 80% share.
