Technology

Why Analysts Are Chasing Western Digital Targets Higher

Jon C. Ogg

Published: January 26, 2017 11:05 am

Last Updated: January 12, 2020 3:29 pm

Western Digital Corp. (NASDAQ: WDC) has seen its share of ups and downs over the years. With shares up over 100% from the lows of 2016, it is not that surprising that some of the gains in its recovery might have been at least partially priced in after earnings.

24/7 Wall St. tracked many analyst calls in Western Digital, and most analysts are raising their target prices, regardless of whether they already have Buy ratings or cautious ratings.

Western Digital’s revenues of $4.89 billion were higher than its $4.75 billion guidance. It also posted gross margin of 36.7%, ahead of some analysts. Its earnings per share (EPS) of $2.30 was also higher than expected and higher than its guidance.

There are some exceptions here, and it was not just analysts and investors questioning the hard disk drive (HDD) model. HDD units were slightly lower than some analysts were calling for after weakness in consumer electronics and in notebook units.

Here is how some of the analysts on Wall Street have rated Western Digital after earnings.

Jefferies has a Buy rating and raised its price target to $96 from $90. The Jefferies takeaway said:

Second quarter revenue and EPS results were above Consensus; Third quarter guidance was also above the Street with a very strong gross margin outlook driven by mix and a favorable pricing environment in NAND. We expect the company to continue to benefit from strong HDD and NAND fundamentals in the near to medium term. As such, we’re keeping our Buy Rating.

Merrill Lynch’s Wamsi Mohan maintained a Neutral rating, but the price objective was raised to $90 from $77. The firm sees NAND tightness having acted as an offset to weaker-than-expected HDD results. The analyst feels that the pace of industry 3D NAND transition remains key and that the average sale price increases in NAND overwhelmingly contributed to the strength in gross margins. The Merrill Lynch investment rationale said:

We believe near term end market trends and favorable execution offset some of the risks around NAND technology transitions. Longer-term we see the benefit from acquiring SanDisk NAND Flash, especially as the notebook and high performance enterprise HDD market transitions away from HDDs. We rate shares of Western Digital at a Neutral given the balanced risks in the near term offset by longer term opportunity.

Other analysts increased their price target as well:

• Barclays has an Overweight rating and raised its price target to $93 from $75.
• Cowen has an Outperform rating and raised its target to $89 from $72.
• Deutsche Bank has a Buy rating and raised its price target from $75 to $88.
• Mizuho has a Buy rating and raised its price target to $92 from $82.
• Morgan Stanley has an Equal Weight rating but also raised its target to $81 from $68.
• RBC Capital Markets has an Outperform rating but raised its price target to $90 from $80.
• Citigroup has a Buy rating and raised its price target from $85 to $100.

Western Digital shares were last seen trading down 1.1% at $79.09 Thursday morning. Its 52-week range is $34.99 to $81.67, and that high was hit earlier the same morning. The old consensus analyst target price of $79.92 is likely to rise higher after the new target prices are accommodated.