Morgan Stanley Predicts A Delayed Recovery For Seagate Stock

Despite a turnaround in technology hardware demand taking longer than expected, Morgan Stanley warns Seagate Technology Holdings may suffer.

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A report by Erik Woodring on Friday lowered his price target on Seagate stock (ticker: STX) from $72 to $60 over the next three months, and he placed his equal weight rating on the company from Overweight to Equal Weight.

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A day earlier, Seagate had announced that its March-quarter results would be worse than expected and that its outlook for the current quarter would also be disappointing. In a statement issued by the company, management said that the company was seeing a "longer correction in customer inventories."

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There is no doubt that the path to outperformance has also been pushed out, with risk levels closer to the long-term average,” Woodring wrote. “Market conditions-including both demand and pricing have degraded more rapidly than we anticipated at the end of March and the beginning of June. We remain cautiously optimistic, as we continue to look forward to 2017.

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In early trading on Friday, Seagate's stock fell 2% to $55.94 a share.

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As a result of the company's cautious remarks, the analyst believes the industry turnaround is still at least two quarters away, but may take as long as three quarters. Among other recent corporate disclosures, he cited Seagate's numbers and poor guidance.

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There were a number of companies this week that reported weak financial performance, including Seagate. A prominent reseller of IT hardware, CDW (CDW), stated on Tuesday that the company's first-quarter revenues would miss the company's expectations by a large margin, citing a sharp decline in corporate IT spending as the reason for the decline.

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It was reported earlier this month that worldwide shipments of PCs declined 29% over the previous year in the March quarter, according to research firm IDC.

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“Given the limited visibility management has themselves right now, we think it is difficult to gain full confidence today that an end-of-year recovery can be achieved," Woodring wrote in his recent article.

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