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On Wednesday, Morgan Stanley (NYSE:MS) analyst Erik Woodring updated the firm’s view on Western Digital Corp. (NASDAQ:WDC), assigning an Overweight rating to the stock, a notable shift from the previous price target of $93.00, now set at $46.00. The reevaluation comes amidst a period of skepticism towards Hard Disk Drives (HDDs) and a spike in Western Digital’s short interest, which has reached a 12-month peak. According to InvestingPro data, the stock currently trades at $35.93, with analysts maintaining an overall bullish stance and a consensus high target of $100.
Woodring’s analysis acknowledges the negative investor sentiment surrounding HDDs and Western Digital’s recent underperformance in the market, which has fallen 10% since the tax-free spinoff of SNDK. The stock’s challenges are reflected in its performance metrics, with InvestingPro showing a 30% decline over the past six months. Despite these challenges, Morgan Stanley sees an opportune moment to engage with the cyclical hardware stock, citing low expectations and a valuation that presents potential upside. The company maintains strong fundamentals with a current ratio of 1.99, indicating healthy liquidity.
The firm outlines several reasons for their positive outlook: a belief in the sustained demand for HDDs despite recent concerns over tariff policy volatility, an understanding of Western Digital’s current valuation discount compared to its peer Seagate Technology (STX), and an expectation that consistent execution will narrow this gap within the next year. Trading at a P/E ratio of 10.02x and price-to-book of 1.03x, Western Digital appears undervalued according to InvestingPro’s Fair Value analysis. Additionally, Morgan Stanley anticipates that Western Digital’s efforts to reduce debt and possibly initiate a dividend in the coming 6-12 months will benefit shareholders. The company’s financial health score is rated as GOOD, with multiple positive indicators available through InvestingPro’s comprehensive research reports.
The new price target of $46.00 is based on an 11.5x multiple of through-cycle earnings per share (EPS), which includes a 10% discount relative to Seagate Technology. Morgan Stanley also provides a bull case valuation of $62 and a bear case valuation of $24, suggesting a greater than 2:1 positive risk-reward skew for Western Digital’s stock.
In other recent news, Western Digital Corporation has disclosed preliminary financial details following the completion of its flash business spinoff into Sandisk Corporation. This strategic move led to the reclassification of Sandisk’s results as discontinued operations in Western Digital’s financial statements. Additionally, the company announced its intention to redeem $1.8 billion in senior notes, which are set to mature in 2026, as part of its broader strategy to manage its debt profile.
Analysts at Mizuho (NYSE:MFG) Securities have adjusted their outlook for Western Digital, reducing the price target from $82 to $68 while maintaining an Outperform rating. This adjustment follows revised revenue and earnings per share estimates for the company, which are notably lower than consensus estimates. Meanwhile, BofA Securities has maintained a Buy rating with a steady price target of $58, expressing confidence in Western Digital’s competitive positioning and future business prospects.
Benchmark analysts have maintained a Hold rating on Western Digital, noting the broader memory chip market dynamics highlighted by Micron (NASDAQ:MU)’s recent update. Western Digital’s strategic focus includes enhancing its hard disk drive technology and reducing debt, with a commitment to strong capital returns to shareholders. These developments reflect ongoing changes and strategies within the company as it navigates the competitive storage market.
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