HTCH

Hutchinson Technology will report 3Q 2013 results on Thursday, July 25.  Their two public customers report on the 24th (Seagate & Western Digital).  Their near term forecasts, and probably some stock performance will depend on sales and projections from WDC and STX, although, in the longer run, the HTCH narrative is about regaining market share, so my long run sentiment wouldn't be effected as much by current changes in broader hard drive sales.

The main news will be Hutchinson's guidance on sales in the coming quarter and any color they add about further gains in the DSA (dual stage actuator) segment.  I don't expect it, but any more delays in additional sales from new DSA projects or larger than expected drops in TSA+ sales would require some soul searching about future expectations.  What I would like to see is a firm path to 125 million units per quarter over the next few quarters, with a good jump in sales in the 4Q 2013 guidance to something over 110 million units.

Any changes in the broader industry would mostly serve as means for me to sell at something near the target price earlier than expected, or buy/convert to options if further gains simply look to be delayed by industry noise.  The biggest danger would be bearish reports by STX & WDC, followed by disappointing guidance by HTCH, which would leave me in the position of wanting to lighten up, but without a decent price point at which to do it.

I regressed HTCH against both STX and WDC over the period since December 2011, when HTCH first started bottoming out.  The regressions tend to reflect the narrative here of a HTCH-specific price change that reflects its strengthening position within the industry more than the strength of the industry itself, even though the industry has certainly had a couple of good years.

The beta to both STX and WDC is around .35 against both stocks, and the alpha (weekly) of HTCH after accounting for its correlation to those stocks is nearly 1% per week over that time, although most of that alpha has been achieved in the past few months.  The beta is low even if I leave out the recent period with HTCH's sharp rise.  Considering the fact that HTCH is a more volatile stock, the extremely low beta is surprising, even to me.  And, oddly, the weekly beta is lower than the daily beta.  I would have expected daily noise in HTCH trading to make the correlations stronger on a weekly basis.  The point of all of this is to say that the STX and WDC effect on the HTCH share price over the next few weeks may be less than one might expect, although I would expect a reaction on the day of the earnings reports.

In any case, industry wide sales had seen a decline in the past couple of years compared to estimates from 2011.  HTCH might have been above $10 by now if not for that disappointment, so they are not wholly immune from industry trends, but I'm still looking for anywhere from $12 to $25 before I am through here.  We're trading at around $5 right now.