StorageTek Gets a Lift

Storage Technology Corp. (StorageTek) (NYSE: STK) saw its stock price surge in morning trading today following the companys announcement yesterday that it had more than doubled its first-quarter earnings compared with the same quarter last year (see StorageTek Posts Q1 Sales Growth).

The company’s stock climbed more than 9 percent, to $24.97 per share, in the morning session. It was up 5 percent, at $24.03, in midafternoon trading amid a mixed broader market for technology issues.

After the bell yesterday, StorageTek posted earnings for its first quarter of $16.5 million, or 15 cents per share, up from $6 million, or 6 cents a share, in the year-ago quarter. The company’s revenue for the quarter also rose to $480 million from $455.9 million last year. Earnings exceeded the 13-cent-per-share consensus forecast of analysts polled by Thomson First Call.

"Even with weak economies and geopolitical unrest, we delivered a strong quarter," said Pat Martin, StorageTek's president and CEO, on a conference call yesterday. "Like many in our industry, we continue to see customer deferrals and elongated sales processes. However, we know that... we had the right offerings at the right time."

Martin said that several factors had helped StorageTek weather the ongoing storm in the storage market, including a 14 percent increase in the company’s service revenues and a whopping 86 percent growth in disk product sales compared with the first quarter of 2002. The launch of new products, expansion of the company’s distribution capacity, and increased investment in telemarketing also helped boost results.But some industry analysts remained cautious on StorageTek's outlook. A.G. Edwards analyst Shebly Seyrafi points out that without favorable currency exchange rates, the quarterly revenues would actually have decreased 1.2 percent year over year, instead of showing an increase of 5.3 percent. About $30 million of StorageTek's revenues in the quarter were attributable to favorable currency exchange rates. "Without the currency, this company would not have grown," he says.

As for the StorageTek’s stock swell, Seyrafi says investors had probably expected the company to do worse, since the first quarter is traditionally its worst. "The stock appears to be fully priced," he says. "I would not be recommending purchases at these levels."

Other analysts are more optimistic. "We believe that STK’s fundamentals have shown gradual yet steady improvement since the appointment of a new CEO in the fall of 2000," Needham & Co.

analyst Glen Hanus wrote in a research note today. "We believe that the odds favor slow continuing improvement of STK’s fundamentals over the next year."

The company reiterated its guidance for 2003, saying it expects revenue growth in the low to mid-single digits. The company expects net income for the year to be $125 million to $135 million. Analysts surveyed by First Call expect StorageTek to earn $1.18 a share in 2003.

The company also reiterated its capital spending estimate of $60 million to $80 million, but StorageTek CFO Robert Kocol said on yesterday’s call that it’s likely to be closer to the lower end of the range.— Eugénie Larson, Reporter, Light Reading