Is Veeco Set for a 40% Drop? (VECO, WDC, STX)

Veeco Instruments Inc. (NASDAQ: VECO) is supposed to be one of the winners in the move to LED lighting in the future, but its exposure to the hard disk drive markets is being featured negatively this morning in a research call.  Some recent mandatory measures coming out of China could be a game changer for those companies already set to do business in China, but a research report this morning is panning the growth prospects due mostly to other markets that the company is in.

Canaccord Genuity’s Jonathan Dorsheimer has maintained a SELL rating.  More importantly, his price target objective of $14.00 per share implies that much more pain is headed the way of Veeco.  After closing at $25.53 on Friday, this stock has already fallen by more than half from its 52-week high of $57.67.  Down more than half already, yet another 40% of losses expected for shareholders?

Dorsheimer did note that Veeco will benefit from the HDD factory rebuilding efforts in Thailand but not enough to offset the difficult scenarios that the firm sees in the 2012-2013 MOCVD market. Western Digital Corporation (NYSE: WDC) is a customer of Veeco’s Data Storage equipment and the firm expects that Veeco will see a slight benefit from equipment sales as Western Digital rebuilds its factory.

Seagate Technology PLC (NASDAQ: STX) had only minimal damage reported and it is not planning to boost CAPEX. Veeco’s next one to two quarters could trend toward the higher end, but this disruption appears to be temporary.

The $14 price target is based upon 10-times Canaccord’s 2012 earnings estimate plus the company’s cash per share.  Veeco has a consensus price target objective from Thomson Reuters of $31.00 per share, and it is worth noting that this $14 call is the lowest price target of all Wall Street firms.