Check Out This 'Overly-Discounted' Datacenter Storage Pure Play

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  • Quantum Corp QTM shares plummeted more than 43 percent in the past three months.
  • Roth Capital Partners analyst Brian Alger initiated coverage of the company with a Buy rating and a price target of $1.50.
  • Alger believes that the company’s shares are overly discounted, and the Street expectations are conservative.

Analyst Brian Alger wrote, “We believe the Street has too narrow, if not outright incorrect, an assessment of Quantum and its prospects.” Alger said that the recent weakness in the data protection segments seems has “masked significant growth and an expansion in TAM through scale-out storage offerings targeting multiple verticals.”

The fears related to the company’s upcoming debt payment appear “unsubstantiated.” Alger believes that the debt due in 2015 had already been accounted for and could be refinanced “any day between now and the due date.” Moreover the Street seemed to be ignoring the value of the royalty stream, which by themselves “should make funding the 2017 payment a non-issue as well,” the analyst wrote.

Alger expects the company’s profits to rebound “as data protection stabilizes and scale-out growth delivers leverage to the bottom line.” He estimates scale-out storage to grow from 24.2 percent of product sales in FY15 to 40.3 percent in FY16 and 52.0 percent in FY17.

The sales and EPS estimates for FY17 are at $552 million and $0.10, respectively. In the report Roth Capital Partners noted, “We believe there is considerable upside to this projection both in the form of higher revenues, as well as better margins…With our price target representing more than 30% upside from current trading levels, we initiate coverage with a Buy rating.”

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Posted In: Analyst ColorInitiationAnalyst RatingsROTH Capital Partners
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