Western Digital Just Added To Jefferies' Franchise Pick List

In a report published Monday, Jefferies analysts have added

to the Jefferies Franchise Pick List. The company has been rated Buy, with a price target of $123. The analysts believe the recent decline in Western Digital's share price offers a good entry point, while expecting cloud storage to drive revenue growth for Western Digital by CY16. In addition, the analysts also expect an upside to their estimates, driven by increasing ASPs for cloud/capacity drives. The Hard Disk Drive industry is likely to benefit from the ongoing investment in cloud service and storage-based SaaS companies. According to Jefferies, "Fears around accelerating NAND adoption, particularly for Enterprise storage applications, are overdone in light of ongoing reductions in cost / bit by HDD vendors." While the demand for NAND might continue and Flash could see robust growth, they are unlikely to replace all HDD shipments. In addition, the analysts believe that any downside risk that Western Digital might see due to weak PC volumes in the longer term has already been factored into the stock. "We see the combined bear case of higher SSD penetration and lower PC volumes as creating only 15% downside risk to CY16 EPS, which we believe is likely reflected in the recent pullback in the stock and is potentially offset by upside from Cloud/Capacity HDDs," the analysts added.