Maxtor (MXO) lowered its second-quarter outlook. R.W. Baird downgraded its rating on the shares to neutral from outperform and cut its price target to $7.
Analyst Daniel Renourad says that although Maxtor's lower outlook is not a shock, the magnitude is surprising, and he believes a more cautious view on the stock is warranted. He says the shortfall is due to lower-than-expected unit shipments to distributors and a more negative pricing environment. Renourad notes that company management expects average selling prices to decline by 5% sequentially in the second quarter, as the price gap between distributors and OEMs narrowed more than expected, particularly late in the quarter. He cut his 2004 estimate from earnings per share of 45 cents to a 5-cent loss per share, although he believes his estimate could prove conservative if Maxtor executes better in 2005 and industry prices improve.