Summit Research Sets New Buy Rating On Western Digital: Here's Why

WR Hambrecht’s Srini Sundararajan initiated coverage of Western Digital Corp WDC with a Buy rating and a price target of $74. The analyst believes that the acquisition of SanDisk Corporation SNDK would improve Western Digital’s position in the SSD arena.

Western Digital is a leader in the HDD storage market, with a market share of 44 percent. The company is now in the process of acquiring a captive NAND resource and having a vertically optimized manufacturing pipeline.

Analyst Srini Sundararajan mentioned that Western Digital’s major strengths include its policy of giving back 50 percent of its free cash flows to shareholders via buybacks and dividends and its leading position in the HDD industry.

Growth With Acquisitions

The acquisition of Hitachi Global Storage Technologies in 2012 boosted Western Digital’s market share in the Enterprise market. “WDC is doing rather well in the SAS SSD market as well as a result of the HGST acquisition. Enterprise SSD and HDD GM are up to 5% to 10% higher than retail PC market HDDs,” Sundararajan stated.

Although the cost of SanDisk’ acquisition is high, at $17 billion, the company will vertically integrate Western Digital as both a supplier of HDDs and SSDs with captive capacity and result in synergies worth $500 million within 18 months, the analyst commented.

Western Digital is also expected to realize further synergies of $1.1 billion by 2020.