The Zacks Analyst Blog Highlights: Western Digital, Hitachi, Apple, Nokia and Transocean
CHICAGO, Dec. 30, 2011 /PRNewswire/ — Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Western Digital Corporation (NYSE: WDC), Hitachi Ltd. (NYSE: HIT), Apple Inc. (Nasdaq: AAPL), Nokia Corp (NYSE: NOK) and Transocean Ltd. (NYSE: RIG).
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Here are highlights from Thursday’s Analyst Blog:
WDC Secures Hitachi Buyout Nod
U.S.-based disk drive producer Western Digital Corporation (NYSE: WDC) recently announced that the Fair Trade Commission of Japan has cleared Western Digital’s application for acquiring Hitachi Ltd.’s (NYSE: HIT) hard disk drive unit.
However, in order to acquire Hitachi’s hard disk drive assets, WDC has to divest some of its existing assets. As per the recent agreement, the company has agreed to sell about 10.0% of its total units, which produces 3.5 inch hard disk drives for personal computers and consumer electronics.
This asset sale is biggest divestiture in Hitachi’s history. The company is involved in manufacturing devices for nuclear power plants, trains and other infrastructure related products.
Moreover, for Western Digital, this buyout will help it attain the top spot of the hard drive market, brushing aside stiff competition from smaller hard drive and flash drive manufacturers, which supplies hard disk drives and related components to the likes of Apple Inc. (Nasdaq: AAPL) and Nokia Corp (NYSE: NOK).
This acquisition is expected to make Western Digital a more customer-focused storage company, with significant operational scale and a product suite that will enhance its competitive edge in the international market. On the other hand, some industry experts believe that the combined entity may lose some market share, owing to the competitive price offered by several smaller players for their hard disk drives.
Apart from its existing manufacturing facility, the company is planning to start manufacturing operations in regions like Thailand and Malaysia. Moreover, WDC expects the acquisition of Hitachi Global Storage Technologies to be completed during that period, subject to regulations imposed by the European Commission.
In light of the above mentioned facts, we believe that WDC is positive about reviving its operations in Thailand, which is already in demand among different PC manufacturers. Moreover, the company is trying to lower its interest expense by reducing its debt burden.
Although Western Digital is cash rich, its cash generation ability has been tempered somewhat by the stagnant pricing environment. Moreover, intense competition in the hard disk manufacturing space and higher component cost price are headwinds for the company. On the positive side, renewed interest in Thailand might help the company to improve its business fundamentals.
The company has a Zacks #2 Rank, implying a short-term Buy rating.
Could Transocean Drop Further?
Switzerland-based Transocean Ltd. (NYSE: RIG) is the world’s largest offshore drilling contractor and the leading provider of drilling management services worldwide. The company owns, has partial ownership interests in, or operates 137 mobile offshore drilling rigs. Transocean’s drilling fleet consists of 47 high-specification deepwater floaters, 25 mid-water floaters, 9 high specification jackups, 53 standard jackups, and 3 other rigs utilized to support offshore drilling activities worldwide. Additionally, the company had one ultra-deepwater drillship and 3 high-specification jackups under construction.
One of the Worst Energy Performers
Transocean has seen its stock price slump more than 40% this year – one of the worst performing energy companies in 2011 – as investors have been selling the scrip for its weak fundamentals and tepid outlook. The disappointing third quarter results and a number of other challenges have added to this bearishness. In fact, shares of the company hit a new 52-week low of $38.21 on Wednesday, December 28. Due to the beaten down stock price, Transocean’s yield has been pushed all the way to over 8%.
Transocean recently reported lower-than-expected EPS for the September quarter – 5 cents versus the Zacks Consensus Estimate of 75 cents and the year-ago profit of $1.36 – adversely affected by the decline in utilization rates and high operating costs.
Transocean, whose ultra-deepwater Horizon drilling platform sank following a fire and explosion while operating in the U.S. Gulf of Mexico last year, is already struggling with the ensuing uncertainty related to its liability exposure. The high out-of-service time, together with the rise in net debt/reduction of liquidity associated with the recently completed Aker acquisition, are also near-term setbacks, in our view.
The Swiss offshore driller’s recent issuance of new stock – that represents roughly 8% of the company’s total outstanding shares – has led to investor skepticism regarding the continuity of the current dividend payout by the company. There are also apprehensions that the share sale would seriously dilute Transocean’s earnings.
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