Argus: Western Digital Poised To Beat The Market After Cash Infusion

• Western Digital Corp WDC shares are down 30 percent year-to-date, trading significantly below the $100 mark since April 24.
• Argus’ Jim Kelleher upgraded the rating for the company from Hold to Buy, while setting a price target of $90.
• Unisplendour Corp has agreed to pay $3.8 billion for a 15 percent stake in Western Digital. Kelleher believes this will help the company to continue diversifying.

Western Digital has agreed to sell 15 percent of its stake to China’s Unisplendour Corp at $92.50 per share. The $3.8 billion in cash from the transaction will help Western Digital improve its balance sheets and “continue investing beyond the HDD space.”

Analyst Jim Kelleher mentioned that Western Digital is the market leader in HDD manufacturing, and its business has been affected by low PC demand due to “secular disruption” and “cyclical weakness” in emerging markets.

Kelleher said, “In a slow-growth environment for HDDs, and given ASP pressures, we expect constrained growth in total company revenue and EPS at Western Digital. At the same time, the company is showing promising momentum in non-client markets, and most notably enterprise HDDs and SSDs.”

Western Digital’s shares have underperformed the peer group year-to-date, declining 28 percent versus a 14 percent decline for computing and information processing companies. Significantly short of their peak prices of around $115, the shares now appear to be “trading below fair value,” the Argus report stated.