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On Aug 14, 2013, we upgraded our recommendation on LSI Corp from Neutral to Outperform on account of better-than-expected second-quarter results and a firm outlook provided by the company. LSI also has a Zacks Rank #2 (Buy).

Why the Upgrade?

LSI reported better-than-expected second-quarter results wherein both the top and bottom line came ahead of the Zacks Consensus Estimate. Moreover, the company provided a positive outlook for the third quarter.

Over the past four quarters, LSI has delivered an average surprise of 37.3%. Moreover, the company has witnessed positive estimate revisions over the last 30 days. Out of the six analysts covering the stock, three analysts have made positive estimate revisions during the period. As a result, the earnings per share estimate of the company has also increased by a penny to 13 cents.

Reasons for the Positive Bias on the Company

The company has a broad range of products that enables it to serve a diverse clientele in the hard disk drive (HDD), server and networking end markets. The expected growth in demand for Virtual Desktop Infrastructure, Hadoop and other Big Data applications and higher sales of flash-based products and product launches are expected to boost LSI’s performance in 2013. 

We think that LSI’s focus on flash-based technology will be beneficial for the company, going forward. Moreover, the continuous share buyback and dividend payout are expected to boost investors’ confidence.

Other Stocks to Consider

Besides LSI, other stocks in the technology sector that are currently performing well include Quantum Corp. (QTM - Snapshot Report), SanDisk Corp. (SNDK - Analyst Report) and Hewlett-Packard (HPQ - Analyst Report). While Quantum and SanDisk carry a Zacks Rank #1 (Strong Buy), Hewlett-Packard carries a Zacks Rank #2 (Buy).

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