Why Western Digital Is Likely To Deliver A Q1 Beat And Raise

The rationale for the expectations? The NAND business offsets what appeared to be some share loss in 10TB nearline HDDs.

Notwithstanding the optimistic expectations, the firm sees the stock bridled until Western Digital rectifies its NAND flash roadmap through a cemented partnership with Toshiba Corp (USA) TOSYY in fab 6. This, according to the firm, is highly likely.

As such, the firm maintains its Outperform rating on the shares of the company, with a $117 price target.

Analyst Karl Ackerman said an ultimate resolution of Fab 6 ownership is the most prominent issue at hand between Western Digital and Toshiba. Without an ability to co-invest, the analyst thinks Western Digital's NAND technology roadmap is clearly at risk.

However, the analyst thinks the Street estimates for the September quarter of $5.14 billion in revenues and $3.31 per share in earnings per share appear about $100 million and 30 cents light.

Cowen said the 30 cents per share upside it estimates over the Street estimate is driven exclusively by the NAND business, cost control and stronger-than-expected NAND ASPs. The firm also said the other tailwinds include its checks, which point to the company shipping about 42.5 million HDD units, about 1 million ahead of its initial expectations.

The firm indicated even if it adjusted its estimate for higher operating expenditure, some share loss to Seagate Technology PLC STX in nearline, lower NAND bit growth and higher ASPs, it still arrived at earnings per share of $3.45, well ahead of the Street forecast of $3.31.

Additionally, the firm said it has a positive bias into the December quarter, too, as it feels Street estimates that call for revenues of $5.34 billion and earnings per share of $3.58 appear too low. The firm estimates revenues of $5.68 billion and earnings per share of $4.02, premised on SanDisk's legacy business.

Cowen recommended investors continue to stay long on the stock from here, given several catalysts that have yet to play out. The catalysts include significant runway left where the company can execute on delivering over $1.3 billion in annualized cost savings from integrating Hitachi and SanDisk by the end of calendar-year 2017.

Further debt pay-down, mix benefits as the company ramps its 10TB helium drive amid healthy data center spending environment and improving S/D backdrop in the near term for NAND would also serve as catalysts, the firm added.