Western Digital Corp. (NASDAQ: WDC) has been hit hard in 2015 from weaker-than-expected personal computer (PC) sales. In fact the company’s stock is down 28% year to date. However one key analyst believes that Western Digital will be able to turn itself around. Wells Fargo’s Maynard Um was on the call.

Wells Fargo initiated coverage on Western Digital with an Outperform rating and a $100 to $110 valuation range. The firm also has fiscal 2016 estimates of $6.98 in earnings per share (EPS) on $13.6 billion in revenue, compared to consensus estimates of $6.91 per share on $13.5 billion.

While the investment bank recognizes the potential risks inherent in the hard disk drive (HDD) markets, Western Digital has historically managed the industry dynamics well and has also made strategic moves to mitigate potential risks of flash adoption through multiple acquisitions in 2013.

Also PCs no longer account for roughly 75% of total units as they did a few years ago, and they should continue to decrease as a percentage of the total. They still account for roughly 60% (and a low-40% of revenue), likely continuing to make the stock volatile around PC data points.

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To that end, there is likely to be some trepidation, given the weak PC demand environment. The PC industry in 2015 has been, thus far, affected by lower demand to higher pricing by original equipment manufacturers to offset the stronger U.S. dollar, among other things.

Wells Fargo believes management’s guidance for a total addressable market of 115 million, up from 111 million in the September quarter, appears achievable, if not conservative, as industry shipments tend to see a seasonal uptick in the September quarter.

The rating is predicated on five reasons that make up Wells Fargo’s investment thesis:

• Scope for continued free cash flow (FCF) generation above net income (believe WDC has levers).
• Potential for upward bias to WDC’s long-term gross margin guide of 27-32% (provides strategic flexibility).
• Operating expense, gross margin, and cash conversion cycle (CCC) optionality related to the potential for China’s Ministry of Commerce (MOFCOM) to allow integration of its Hitachi acquisition.
• Balanced/steady cash return to shareholders.
• History of strong execution.

Shares of Western Digital were up 2.6% to $80.65 just after Thursday’s opening bell. Its 52-week trading range is $74.44 to $114.69. The stock has a consensus analyst price target of $101.79.

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