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Why This Analyst Called The Western Digital–Unisplendour Deal A 'Huge Positive Landscape Altering Agreement'

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Why This Analyst Called The Western Digital–Unisplendour Deal A 'Huge Positive Landscape Altering Agreement'

  • Shares of Western Digital Corp (NASDAQ: WDC) have lost nearly 30 percent year-to-date, despite surging higher by nearly 15 percent on Wednesday.
  • Wednesday's surge follows an announcement that the company has agreed to an equity investment of $3.8 billion from China's Unisplendour.
  • Ananda Baruah of Brean Capital commented in a note that the deal is "incredibly structurally positive" and a "huge positive landscape altering agreement."
  • Western Digital announced on Wednesday that it has agreed to accept an equity investment of $3.8 billion from China's Unisplendour at a price of $92.50 per share, representing a 33 percent premium from Western Digital's prior closing price of $69.37.

    Commenting on the deal, Ananda Baruah of Brean Capital stated that the deal is "incredibly structurally positive" and represents a "landscape altering agreement."

    Share Buybacks And M&A Activity Ahead?

    Baruah continued that Western Digital now has "material cash flexibility" to initiate share buybacks and M&A activity. The analyst added that the company now has access to $4 billion to $4.2 billion, marking a "huge increase" from $300 million to $450 million prior to the deal announcement.

    Related Link: Morning Market Gainers

    Increased Likelihood Of MOFOM Approval

    Baruah noted that the agreement with Unisplendour also increases the likelihood of MOFOM approval, which could be "so incredibly accretive" at $4.00 to its earnings per share (on a current $7.00+ normalized earnings per share).

    Looking Ahead

    Finally, Baruah argued that the deal sends a "strong message" to the market that tremendous value "remains unlocked" in the HDD chain given the "impressive" mechanics.

    Bottom line, Western Digital is now partnering with a "very credible" Chinese partner.

    Shares remain Buy rated with an unchanged $150 price target, and the stock "remains extremely attractive" at its current levels.

    Latest Ratings for WDC

    DateFirmActionFromTo
    Dec 2019ReinstatesHold
    Oct 2019UpgradesHoldBuy
    Sep 2019MaintainsBuy

    View More Analyst Ratings for WDC
    View the Latest Analyst Ratings

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