STEC Shares Soar on Q2 Outlook, Higher Analyst Estimates

Shares of Santa Ana’s STEC Inc., a maker of flash drives for corporate and industrial uses, soared Tuesday after the company upped its outlook for the current quarter.

Investors drove shares up about 27% at close of trading on a recent market value of about $1 billion.

For the three months through June, STEC said it’s now expecting to report profits of $16 million to $14 million, up from a previous forecast of $10 million to $11 million in profits.

The company now is looking for sales of $82 million to $84 million, up from an earlier outlook of $68 million to $70 million in sales.

Wall Street analysts, on average, are expecting profits of $10 million on sales of $69 million.

The rosier outlook is due to better than expected sales of STEC’s lineup of drives, which now are estimated to come in at more than $55 million for the second quarter.

STEC has been flying high on a series of design win for the drives, which are built into servers used by banks, insurance companies and others that have to keep track of a lot of data.

STEC enjoys a rare position for a technology company these days: a near monopoly.

The company’s hold is on an emerging market for drives that insiders call “solid state” because they have no moving parts.

Last year, STEC rolled out a line of solid state drives that are set to be built into servers made by EMC Corp., Hitachi Data Systems Corp., Sun Microsystems Inc. and others. It also recently announced design wins with IBM Corp. and a unit of Fujitsu America Inc.

STEC’s shares have more than tripled since the start of the year. They went on a bit of a roller coaster ride last week, after an analyst downgraded the stock on concerns that the company’s “historic run” might come to an end and said all of the good news has already been priced into shares.

On Tuesday Needham & Co. analyst Richard Kugele increased his estimates for the company.

For the second quarter, he now expects STEC to post sales of $83 million, up from a previous outlook of $68 million in sales.

“We believe that STEC’s enterprise solid state drive business is at an inflection point, with key tier-one customer wins shifting into production volume that should drive tremendous revenue and earnings growth in 2010,” Kugele said in a research note. “Despite the recent run-up in shares, we see significant upside to the stock as this growth opportunity manifests itself.”

He increased his profit outlook to $15 million, up from $11 million, and upped his price target to $28 per share, up from $21 per share.

STEC was trading at around $23 on Tuesday.