JP Morgan added Lexar Media (LEXR ) to its Focus List, and says investors should overweight the shares.
Analyst Paul Coster says data-storage device maker Lexar's fundamentals are superb. He thinks a recent industry sell-off, which included Lexar, SanDisk, and M-Systems, appears to have been based on fears of oversupply and declining retail prices, but he views the industry as supply-constrained.
Coster thinks the Flash memory product market is still in the early stages of development; Lexar is in a long-term supply deal with Samsung Semiconductor, the world's leading NAND Flash manufacturer, to increase the use of flash memory as an alternative to CDs, DVDs, and floppy disk drives as downloading of digital songs, movies, and other Internet content grows in popularity. Thus, Lexar enjoys the benefits of preferential supply during supply-constrained periods, as well as a competitive cost structure during periods of oversupply.
Coster expects Lexar to meet or beat expectations for the fourth quarter and issue guidance that aligns with his 66 cents 2004 earnings per share estimate. He set a $23 six-month price target for Lexar shares.