Brean Sees 80% Upside In Seagate Shares, 145% Upside In Western Digital

• Shares of both Western Digital Corp WDC and Seagate Technology PLC STX are down 45 percent year-to-date.
• Brean Capital’s Ananda Baruah maintained Buy ratings on both companies, with price targets at $65 for Seagate and $150 for Western Digital.
• Shares of both Seagate and Western Digital are attractive at current levels, Baruah stated.

Analyst Ananda Baruah believes that the combined company - Western Digital and SanDisk Corporation SNDK - would be able to generate FY17 EPS of $13 - $15. The combined entity should trade at $36B - $60B, versus $29B currently combined, and “as such has very reasonable 25% “reversion” appreciation from here,” he wrote.

The deal is scheduled to close in September 2016, and the combined company should trade in a range of $154 - $256 post close, Baruah said.

Referring to Seagate, the analyst mentioned that the company’s normalized EPS remains at least $5.00 and that “there are many levers to achieve that.”

In the report Brean Capital noted, “Despite the dynamics surrounding high-cap Cloud drives (8TB), we note that STX Sep Q revenue of $2.9B was within its guidance range, and the company actually exceeded Sep Q units by 1M, as TAM of 117M – 118M was stronger than guidance of 110M – 115M.”

Baruah added that Seagate’s 17 percent dividend hike, which offers a 6 percent yield, indicates the company’s confidence in its business model as well as its ability to continue to be extremely cash-flow generative.

Baruah believes could be 80 percent appreciation in Seagate’s shares, and 145 percent appreciation in Western Digital’s shares.